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Photographic 

Sciences 
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23  WEST  MAIN  STREET 

WEBSTER,  N.Y.  t4S80 

(716)  873-4S03 


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CIHM/ICMH 

Microfiche 

Series. 


CIHM/ICMH 
Collection  de 
microfiches. 


Canadian  Institute  for  Historical  Microreproductions  /  Institut  Canadian  de  microreproductions  historiques 


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D 


D 
D 


n 

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0 

n 


Coloured  covers/ 
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I      I    Covers  damaged/ 


Couverture  endommag^e 


Covers  restored  and/or  laminated/ 
Couverture  restaurde  et/ou  pelliculee 


Cover  title  missing/ 

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I      I    Coloured  maps/ 


D 


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Ce  document  est  filmd  au  taux  de  ruduction  indiqu6  ci-dessous. 


10X 

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y 

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ails 

du 

idifier 

une 

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conformity  avec  les  conditions  du  contrat  de 
filmage. 


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sion, or  the  back  cover  when  appropriate.  All 
other  original  copies  are  filmed  beginning  on  the 
first  page  with  a  printed  or  illustrated  impres- 
sion, and  ending  on  the  last  page  with  a  printed 
or  illustrated  impression. 


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papier  est  imprimie  sont  filmds  en  commen^ant 
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dernidre  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration,  soit  par  le  second 
plat,  selon  le  cas.  Tous  les  autres  exe  .iplaires 
originaux  sont  fitm6s  en  commenqant  par  la 
premidre  page  qui  comporte  une  empreinte 
d'impression  ou  d'illustration  et  en  terminant  par 
la  dernidre  page  qui  comporte  une  telle 
empreinte. 


The  last  recorded  frame  on  each  microfiche 
shall  contain  the  symbol  ^»>  (meaning  "CON- 
TINUED'),  or  the  symbol  V  (meaning  'END  "), 
whichever  applies. 

Maps,  plates,  charts,  etc.,  may  be  filmed  at 
different  reduction  ratios.  Those  too  large  to  be 
entirely  included  in  cne  exposure  are  filmed 
beginning  in  the  upper  left  hand  corner,  left  to 
riglrl  and  top  to  bottom,  as  many  frames  as 
required.  The  following  diagrams  illustrate  the 
method: 


Un  des  symboles  suivants  apparaitra  sur  la 
dernidre  image  de  cheque  microfiche,  selon  le 
cas   ke  symbole  — -^  signifie  "A  SUIVRE",  le 
symbole  V  signifie  "FIN". 

Les  cartes,  planches,  tableaux,  etc.,  peuvent  dtre 
filmis  d  des  taux  de  reduction  diff^rents. 
Lorsque  le  document  est  trop  grand  pour  dtre 
reproduit  en  un  seul  clich6,  il  est  film6  d  partir 
de  Tangle  sup6rieur  gauche,  de  gauche  i  droite, 
et  de  haut  en  bas.  en  prenant  le  nombre 
d'images  ndcessaire.  Les  diagrammes  suivants 
iliustrent  la  mdthode. 


rata 

0 


lelure. 


J 


32X 


i  ■  1 . 

2 

3 

1 

2 

3 

4 

5 

6 

1^' 


i 


STUDIES  IN  HISTORY,  ECONOMICS  AND  PUBLIC  LAW 

EDITED   BY   THE    FACULTY  OF   POLITICAL    SCIENCE   OF 

COLUMBIA  UNIVERSITY 

IN    THE    CITY    OF    NEW    YORK 


Volume  IX] 


[Number  2 


T> 


.^.  2^ 


r:t_ 


GERMAN  WAGE  THEORIES 


A   HISTORY  OF  THEIR   DEVELOPMENT 


BY 


JAMES  W.  CROOK,  Ph.D. 

Sometime  Universit!/  Fellow  in  Economics 
Asiittant  Professor  of  Political  Economy,  Amherst  College 


COLUMBIA  UNIVERSITY 
1898 


/ 


/ 


TABLE  OF  CONTENTS 

PACB 

Introduction j 

CHAPTER  I 
Predecessors  of  Hermann 15 

CHAPTER  II 
Hermann 23 

CHAPTER  III 
Hermann's  Successors 33 

CHAPTER  IV 
Criticism 65 

CHAFFER  V 
Von  Thunen 68 

CHAPTER  VI 
The  Socialists .    94 

CHAPTER  VII 
Schuuze-GXvernitz 107 

(V) 


m 


i^'. 


INTRODUCTION 


Ever  since  political  economy  received  its  modern  form  at 
the  hands  of  Adam  Smith,  the  theory  of  wa  es  has  been  in 
controversy.  What  is  true  of  many  economic  questions  is  true 
of  this  one:  the  germs  of  later  and  more  complete  develop- 
ments are  found  in  the  Wealth  of  Nations.  Problems  peculiar 
to  the  periods  of  historical  evolution  since  the  time  of  Adam 
Smith  have  brought  into  prominence  one  or  more  of  the  truths 
which  he  perceived.  The  system  of  natural  liberty  which 
he  so  tenaciously  advocated  brought  the  demand  for  its  com- 
plement and  condition — equality.  But  if  the  history  of  this 
century  records  a  growing  recognition  of  freedom  for  all 
classes,  it  has  also  disclosed  an  obstacle  to  the  realization 
of  freedom,  viz.,  economic  weakness.  The  demand  for  equality 
comes  from  the  economically  weak,  the  wage  receivers. 
Hence,  the  investigation  of  the  economi:  forces  which  deter- 
mine the  incomes  of  those  classes  becomes  an  important  in- 
quiry. Thus  from  a  practical  point  of  view  the  work  done  in 
this  field  by  scientists  of  more  than  one  nation  is  amply 
justified. 

If  science  is  not  international,  it  ought  to  be  so,  to  such  an 
extent  that  the  important  work  of  one  country  be  not  unknown 
to  another.  A  survey  of  the  somewhat  voluminous  German 
literature  upon  the  subject  of  wages  shows  that,  for  half  a  cen- 
tury after  the  publication  of  the  Wealth  of  Nations,  almost  no 
original  work  is  to  be  found.  That  there  was  no  lack  of  acad- 
emic activity  is  clear  from  the  number  of  university  text-books 
issued.  These,  however,  for  the  most  part  repeat,  summarize 
or  but  slightly  modify  the  reasoning  and  conclusions  of  Adam 
303]  7 


) 


8 


o'/.AM/./A'  //'//(//•;  77//:i)A'//:s 


[304 


Smith.  The  CDiulitioiis  of  economic  hfc  in  the  two  coiintrifs 
at  this  pcrioil  were  very  (iiffereiit.  There  was  wantiiif;  on  (ler- 
nian  soil  tlie  stimulatinj;  inlluence  of  unsolveil  practical  prob- 
lems of  economics.  The  "iniUistrial  re\olution"  cievelopeci 
more  slowly  on  the  continent.  There  were  lacking;  those 
conditions  so  favorable  to  the  jjrowth  of  intliistry.  Mnj^laml's 
insular  position  allowed  a  clej^ree  of  political  unity  and  com- 
parative certainty  of  political  destiny  such  as  was  hardly  pos- 
sible to  a  continental  state  closely  surrounded  by  jealous 
neighbors  or  agitated  by  the  contending  forces  iniierent  in  a 
loose  federation.'  The  political  solution  must  precede  the 
economic.  The  I'-nylish  people  have  also  ;)osscssed,  to  a  re- 
markable dei^ree,  those  moral  capacities  wl.ich  underlie  any 
considerable  industrial  progress,  the  capacity  to  labor  and  to 
co-operate.  If  we  add  to  these  facts  the  favorable  climate, 
easy  communication  by  land  and  sea,  and  abundant  supplies 
of  coal  and  iron,  we  may  reasonably  account  for  ICngland's 
industrial  leadership.* 

The  series  of  remarkable  inventions,  beginning  with  that  of 
Hargreaves,  established  the  factory  .system,  stimulated  the 
growth  of  industrial  towns,  and  brought  into  contrast  the  in- 
terests of  laborers  and  employers.  While  this  contrast  was 
not  exactly  a  new  one,  yet  it  was  never  sufficiently  intense  till 
then  to  force  the  legal  barriers  to  labor  combination.  The 
place  which  the  labor  problem  has  occupied  in  the  British 
mind  may  be  roughly  measured  by  that  legislative  accumula- 
tion known  as  the  Factory  Acts,  which  have  been  a  model  for 
similar  legislation  by  other  nations. 

All  this  is  in  contrast  with  the  German  condition.  There 
the  old  industrial  order  with  its  restrictions  and  conservative 
methods  prevailed  long  after  England  had  replaced  the  old 
with  the  new.     Schulze-Gaevernitz^  has  described  the  methods 

'  List,  National  System,  p.  53, 

'  Hobson,  Modern  Capitalism,  p,  73  flf, 

„  Grossbetrieb,  p.  34. 


I 


IT, 


305]  /.y/A'ODrcy/o.v  - 

which   prevailed   in   the    iSlh   cerituiy   throi.-hout   Germany. 
"  Kverythin^,r  w.is  done  Uy  ,„le.     Spinning'  came  under  piibhc 
InspectK.n   ind  the  yarn  was  collected  by  oClicials.     The  privi- 
le^'e  of  weavin^r  u;is  confined  to  the  fraternity  of  the  ^'iiild. 
Methods  of  pr..diiclion    were  strictly    prescribed;    public    in- 
spectors exercised  control.     Defects   in   ueavin^r  were  visited 
with   punisliment.     Moreover,  the  ri^ht  of  dealinc,r  in  cotton 
Roods  wasconfineil  to  the  confraternity  of  the  merchant  ^uild; 
to  be  a  master  weaver  had  almost  the  significance  of  .1  public 
office,     liesides  other  (pialifications,  there  was  the  comlition 
of  a    formal    examinatior..     The    sale   also   was   under  strict 
supervision  ;   for  a   lonjr  time  a   fixed   price  prevailed,  and  a 
maximum  sale  was  officially  prescribed   for  each  dealer.     The 
dealer  had   to  dispose  of  his  wares  to  the  weaver,  because  the 
latter  had  i^Miaranteetl  to  him  a  monopoly  o{  export  trade."' 
How  comparatively  little  pro{,rrcss   Germany   had   made  with 
machine  industry  under  th'..se  conditions   is  iiulicated  by  the 
followin},r  facts.     In  1.S82,  42  per  cent,  of  the  German  textile 
industry  was  still  conducted   in   the  home  or  domestic  work- 
shop,  while  only  38  per  cent,  was  carried  on  in   factories  em- 
ploying^ more  than  50  persons.     More  weavers  were  still  en- 
'i^tx^cd  with  hand  looms  than  with  power-hjoms,  and  the  latter 
was  so  little  developed  that  the  hand  loom  could  still  hold  its 
own  in  many  articles.     Knittinir,  lace  makinj,'  and  other  minor 
textile  industries  are  still  in  the  main  home  industries.'     List. 
in  1844,  laments  the  comparative  infancy  of  German  manufac- 
tures and  continually  seeks  to  impress  upon  his  readers  the 
industrial  superiority  of  England.     Marx   finds   Enj,dand  the 
paradi.se  of  capitalistic  production,  and  althouL,di  familiar  with 
German  conditions  draws  no  important  illustrations  from  his 
native  country.     Writing  jis  late  as  1873  he  declared  that  polit- 
ical economy  was  in  Germany  a  foreign  science,  there  having 

'  Quoted  liy  Ilobson,  MoJern  Capitalism,  p.  78. 

'  Quoted  from  Social  Peace,  p.  113,  by  Ilobson,  p.  78. 


lO 


aFh'Af.-IX  ll'.ICK   /7IK0K/KS 


[306 


existed  there  no  soil  for  its  growth.'  Lnssalle  found  German 
laborers  unorganized  and  so  inured  to  eustoni  as  to  he  almost 
deaf  to  his  passiimate  appeals. 

These  differences  between  the  two  countries  may  adequately 
account  for  the  great  disparity  in  theoretic  development.  The 
existence  of  problems  calls  for  solution;  solution  requires  con- 
structive theoretic  foundations.  That  this  is  the  natural  order 
is  abundantly  shown  in  finance.  I'inancial  difficulties  or  prob- 
lems have  necessarily  preceded  any  considerable  determination 
of  the  science  of  finance  in  modern  nations.  The  new  condi- 
tions and  new  relations  involved  in  machine  production,  or  the 
great  industry  (Grossbetrieb)  bring  into  relief  the  interests  of 
classes  antl  make  necessary  a  scientific  determination  of  both 
productive  and  distributive  forces. 

I'^xperience  has  demonstrated  that  it  is  usually  in  connection 
with  industries  other  than  agricultural  that  the  problems  pe- 
culiar to  the  relation  of  employer  and  employed  come  to  the 
front.  The  classes  subordinated  come  to  feel  their  position,  they 
startle  society  by  proclaiming  some  unusual  doctrine  or  by  per- 
forming some  destructive  act.  Then  the  scientist  sets  about 
understanding  the  phenomena.  This  is  the  usual  seciuenci;, 
but  the  work  of  von  Thiinen  would  seem  to  furnish  an  excep- 
tion to  this  order.  As  an  agriculturalist  he  became  impressed 
with  the  dangers  involved  in  the  existence  of  the  economic  gulf 
separating  classes,  in  advance  of  the  feelings  of  those  classes 
themselves.  As  early  as  1826  he  began  a  series  of  original 
investigations  in  connection  with  agricultural  production,  which 
in  the  course  of  twenty -five  years  yielded  results  that  for  orig- 
inality and  value  may  be  compared  with  some  of  the  best  work 
of  Ricardo.  Moreover,  as  proof  of  his  practical  interest,  and 
to  give  his  theories  of  distribution  a  practical  test,  he  used  his 
agricultural  estate  for  purposes  of  social  experiment.  When 
Rau  published  the  first  edition  of  his  political  economy  (1826) 

'  Preface  to  2d  ed.  of  Capital. 


FF- '' 


/.y/A'o/^rc/vox 


It 


307] 

(Icrinany  had  made  soim.'  start  in  national  activity  which  t,'avc 
rise  to  industrial  problems.  Seven  years  later  1  lermann  broke 
the  parallel  course  of  I-Jij^lish  and  Cerman  economic  writing, 
and  started  Germans  on  a  path  v(  their  own,  which  they  have 
not  wholly  ceased  to  follow  to  this  day. 

Hefore  studyint;  theories  themselves,  it  will  be  useful  to  take 
some  notice  of  termmolo-y.     The  term  wa^'es  as  used  by  the 
different  authors  does   not  always  incKide  the  same  kinds  of 
income.     It  is  not  unnatural  that  men,  writing;  under  different 
economic  conditions,  and  at  i)eriods  so  .separated  by  time  as  the 
writers  brou.^dit  under  review  in  this  essay,  should  differ  in  the 
use  of  a  word  like  wa^r^s,  or  a  phrase  like  wa[;e-class.     There  is 
great  lack  of  unanimity  even  now,  as  will  be  .seen  by  a  compar- 
ison of  the  advocacy  of  different  or  competing  views  held  by 
Walker,  George  or  Sidgwick.    As  to  definition,  the  Germans  did 
not  always  follow  Adam  Smith.     The  latter  said  that  the  wages 
of  labor  were  everywhere  understood  to  be  what  they  usually 
were,  when  the   laborer  was  one  person  and  the  owner  of  the 
stock  which  employs  him  another.'     This  would  confine  wages 
to  the  income  of  laborers  employed  by  owners  of  capital  in  ihe 
course  of  operations  undertaken  for  a  profit.     It  will  not  be 
necessary  to  point  out  here  how  Adam  Smith  departed  from 
this  definition  in  his  treatment  of  wages. 

Schmalz  defines  wages  as  the  income  which  men  receive  from 
others  for  important  or  unimportant,  hor  arable  or  despicable 
services.  Accordingly,  he  cla.sses  genera's,  state  ministers 
and  even  pensioners  as  wage-earners.  There  is  nothing  in 
his  sub.sequent  treatment  to  reveal  the  gain  of  such  a  classifi- 
cation.'  Rau  broadens  the  meaning  to  include  what  the 
undertaker  saves  out  of  his  business  to  pay  for  his  own  activ- 
ity—the equivalent  of  what  he  would  otherwise  have  to  pay  as 
wages.     This  is  the  modern  conception  of  »vagcs  of  superin- 

1  lyectUA  of  Nations,  Rogers'  ed.,  1869,  v.  i,  p.  69. 
^  Staatswirthscka/tslehre  in  Brie/en,  v.  i,  p.  23. 


[.I 


12 


GERMAN  IVAGE   THEORIES 


[308 


,'.  X 


tendence.'  However,  in  the  8th  ed,  he  considers  that  the 
most  important  case  arises  when  over  against  the  worker  there 
is  a  wage-giver  with  whom  he  contracts  for  definite  wages.' 
Fulda  does  a  similar  thing  when  he  makes  a  part  of  the  in- 
come of  the  capitahst  his  wages.  But  he  has  a  different  meas- 
ure for  the  amount.  He  says  the  business  man,  during  the 
time  he  is  in  business,  must  satisfy  his  needs  for  food  and 
shelter  according  to  the  degree  of  his  culture.  He  must  also 
hold  his  capital  in  that  condition  which  is  required  to  prose- 
cute his  business.  The  part  which  his  necessary  support  re- 
quires is  his  necessary  wages;  the  part  Vv'hich  his  capital 
requires  is  his  necessary  profit.3  Hermann  restricts  wages  to 
a  payment  by  one  person  to  another  for  common  services  ren- 
dered. He  distinguishes  services  as  common,  talented,  fixed 
and  official.  For  the  reward  of  common  labor  he  would  use 
wages  (Lohn).  For  the  reward  of  labor  requiring  talent  and 
education,  lionorar.  The  payments  made  by  university  stu- 
dents to  professors  for  their  lectures  are  at  the  present  time 
called  by  that  name.  For  fixed  employment  he  uses  salary 
(Gehalt),  and  for  official  services  fee  (Gage)."*  V,  Thiinen 
would  also  restrict  wages  to  payment  for  hired  labor,  but  he  is 
most  anxious  to  distinguish  between  the  reward  for  labor  as 
such,  and  that  which  is  due  to  the  tools  the  laborer  may  em- 
ploy, includirg  the  simplest  implements.  The  reward  for  the 
use  of  tools  is  interest,  that  for  labor  proper  is  wages.s 

Many  writers  do  not  consider  it  important  to  state  what  they 
mean  by  wages,  leaving  the  reader  to  infer  from  the  general 
treatment  the  sense   in  which   the  word   is   used.     We  are, 

'  Grtcndsdtze  der  Volksunrshschaftslehre,  4lh  ed.,  1841,  p.  20I. 

*  Ibid.,  p.  252. 

'  Gruitdsdtte  der  Oekouomisch-politischen  oder  Kamerahvisst'tschaften,   1820, 
2d  Ed.,  §  186. 

*  Siaatswirthschaftliche  Untersiichnngen,  2d  ed.,  1870,  p.  460. 

*  Dtr  holirte  Staat,  Part  ii,  p.  78. 


309]  IXTRODCCT/OX  ,- 

therefore,  warned  against  apparent  differences  due  to  differ- 
ences of  terminology  merely. 

The  plan  to  be  pursued  in  this  essay  has  occasioned  soma 
thought,  and  the  arrangement  finally  adopted  is  not  without 
objection.  But  since  the  chief  object  in  making  th-.  study  is  to 
discover,  if  possible,  progress  of  thought  on  this  subject,  chro- 
nology had  to  be  sacrificed,  in  some  instances,  to  a  logical 
order.  Hence  while  von  Thunen  appears  after  Hermann  in 
obedience  to  the  time  order  of  their  work,  yet  von  Thunen 
appears  after  Brentano  and  Philippovich,  because  he  is  not  so 
clearly  a  follower  of  Htrmann  as  they  are.  It  has  often  been 
remarked  by  st-dents  of  the  theoretical  Economics  of  the 
Germans  that  there  exists  but  a  slender  thread  of  logical  con- 
nection between  the  great  German  writers  of  the  last  one  hun- 
dred years.  Indeed  it  has  been  said  that  the  attitude  toward 
the  wages-fund  theory  is  the  only  point  common  to  m.ost  of 
them.  But  a  study  of  the  treatment  by  the  Germans  of  the 
wages-fund,  will  not  include  the  work  of  von  Thunen,  as  is 
shown  by  Professor  Taussig's  admirable  "Wages  and  Capital." 
Wishing  to  exhibit,  if  possible,  the  treatment  of  the  .-ntire 
wages  question  by  the  Germans,  passing  over  rather  lightly 
the  part  in  each  author  which  treats  of  the  wages-fund,  because 
Professor  Taussig  has  made  that  familiar  to  English  readers, 
and  trying  at  the  same  time  to  give  unity  to  my  work,  I  have, 
so  far  as  possible,  grouped  writers  who  appear  to  show  the 
largest  number  of  points  of  contact,  and  at  the  same  time  in- 
cluded writers  of  eminence  who,  though  not  connected  closely 
wiih  German  predecessors  or  successors,  have  made  important 
contributions  to  the  subject.  Hence  all  the  German  writers 
treated  here  are  placed  in  two  groups.  One  contains  Schmalz, 
Fulda,  Sartorius,  Lueder,  Kraus,  Rau,  Hermann,  Brentano, 
Roscher,  Mithoff,  Mangoldt  and  Philippovich.  Hermann  is 
the  centre  of  this  group,  and  the  others  are  important  only  as 
they  lead  up  to  him,  depend  upon  him,  deviate  from  him,  or 
throw  light  upon  him.     Apart  from  those  who  come  first,  the 


yp 


H 


GERMAN  WAGE   THEORIES 


[310 


m{- 


-\ 


common  element  in  nearly  all  is  the  method  of  treatment. 
Other  points  of  contact  will  appear  as  we  proceed,  but  this  is 
the  most  conspicuous.  In  this  group  there  is  a  real  unity  of 
method  and  interest.  The  other  group  contains  von  Thiinen, 
Karl  Marx  and  Schulze-Gaevernitz.  These  authors  do  not 
belong  together  in  the  sense  that  the  others  do.  They  have 
so  little  in  common  that  it  is  not  even  necessary  to  .speak  of 
them  as  a  group  except  for  convenience.  They  are  included 
in  this  discussion  because  of  their  importance.  Von  Thiinen 
was  a  genius,  about  whom  it  is  desirable  <-hat  American  students 
should  know  more.  A  fair-minded  and  exhaustive  study  of 
Marx's  theory  of  distribution,  the  full  materials  for  which  have 
but  recently  come  into  our  hands,  has  yet  to  be  made  in  Eng- 
lish. Any  earnest  study  of  his  theory  of  wages  is  welcome  if 
it  adds  anything  to  o\x  real  understanding  of  Marx.  Schulze- 
Gaevernitz  is  noticed  here  because  he  is  the  chief  representa- 
tive in  Germany  of  those  writers  who  regard  wages  as  a 
residual  share,  and  because  the  theory  which  he  represents  is 
exciting  the  interest  of  German  students. 

One  who  goes  to  Germany  to  hear  lectures  on  the  principles 
of  Economics,  or  who  undertakes  a  study  of  the  literature  of 
the  same,  must  not  expect  to  find  a  body  of  doctrines  devel- 
oped independently  on  German  soil,  and  uninfluenced  by  the 
work  of  other  nations.  The  German  professor  has  ever  on  his 
lips  the  names  of  Adam  Smith,  Ricardo  and  John  Stuart  Mill. 
Each  economist  is  followed,  criticized  or  expounded  according 
to  the  knowledge  and  idiosyncra.'ics  of  the  instructor.  The 
present  German  thinking  has  its  roots  in  the  work  of  the 
English  school;  and,  if  the  German  work  is  to  be  understood, 
the  English  work  must  be  mastered  first.  The  same  thing  is 
true  of  the  literature.  The  foundations  have  been  laid  across 
the  Channel.  Hence  in  exposition,  the  theories  of  Adam 
Smith  and  Ricardo  are  often  employed  in  this  study  as 
standards,  and  in  this  way  the  English  and  German  ideas  are 
brought  into  comparison. 


\ 


CHAPTER  I 


» 


PREDECESSORS    OF    HERMANN,    I776-1832 

While  this  period  is  the  least  important  of  all  in  positive 
results,  yet  a  consideration  of  the  work  of  a  few  men  who 
wrote  during  this  time  will  repay  the  student  who  desires  to 
know  the  beginnings  of  thing*^,  and  who  loves  to  trace  the  de- 
velopment of  method  and  theoretic  spirit.  When  Adam 
Smith  published  the  "  Wealth  of  Nations,"  the  physiocratic 
doctrines  of  distribution  were  dominant.  The  struggle  be- 
tween the  views  entertained  by  the  Physiocrats  and  those 
introduced  by  Adam  Smith  was  not  so  bitter  as  such  struggles 
are  apt  to  be.  There  appears  to  have  been  in  Germany  com- 
paratively little  objection  to  Adam  Smith's  statement.  On 
the  contrary,  adherents  sprang  up  wherever  the  new  doc- 
trines became  known.  Within  a  few  years  Germau  students 
were  listening  to  lectures  delivered  by  University  Professors 
who  declared  themselves  followers  of  Adam  Smith.  How- 
ever, there  were  some  who,  for  various  reasons,  could  not 
or  would  not  change  views  already  formed  and  expressed,  and 
who,  though  partaking  of  the  early  advantages  of  this  century, 
took  little  notice  of  the  new  muvement.  Among  these  is 
Schmalz,>  whom  Roscher  calls  the   last    of  the   Physiocrats. 

'Theodor  .\nton  Ileinrich  Schmalz  was  born  1760.  died  1S31,  He  studied 
Theology  and  riiiloso|)liy  at  tlie  University  of  Ciollini^en,  1777-1780.  He  became 
a  Professor  of  Law  at  Rintein  in  178S,  but  liie  following  year  was  called  to 
Konigsberg,  becoming  Director  of  the  University  in  1801.  In  1S03  he  was  trans- 
ferred to  Halle  as  a  judicial  counselor  and  Professor,  where  he  rem.iined  till  1808. 
When  the  new  University  at  Berlin  was  c  tablished  he  became  its  fn-.>t  Director  in 
18 10,  and  as  Professor  of  Law  continued  n  the  service  of  the  Prussian  king. 

As  a  writer  his  life  was  full  of  activity,  his  efiorts  centering  principally  upon 
311]  ,5 


m 


i6 


GEKMA.V  IVAGE   THEORIES 


[3 1 2 


According  to  Sclinialz,  society  is  composed  of  classes 
or  groups,  differinj^  in  standard  of  life.  Yet  there  is  an  average 
standard  to  which  all  groups  are  tending.  The  poor  arc 
spurred  by  ambition  to  approach  the  average,  while  shame 
restrains  the  rich  from  maintaining  a  standard  far  above  the 
average.  Notwithstanding  the  spur  of  ambition,  wages  are 
governed  by  a  law.  That  which  one  is  accustomed  to  con- 
sume in  his  class  during  the  time  that  the  work  is  being  done 
determines  the  wages  he  will  receive.  Two  reasons  are 
assigned  for  this  rate:  I.  The  laborer  demands  it  for  a  life  of 
respectability  among  his  class.  2.  It  is  the  laborer's  right. 
The  que.stion  of  right  enters,  because  wages  are  obtained  from 
men  and  not  from  nature.  When  a  man  sacrifices  his  time  to 
work  for  me.  it  is  right  that  I  give  him  as  much  for  it  as  he 
consumes  in  that  time.  He  has  also  a  right  to  receive  as  much 
for  his  labor  as  the  companions  of  his  class  consume  during 
the  time  in  which  the  labor  is  bemg  performed.  There  is  no 
reason  why  he  should  consume  more  at  my  cost.  If  I  give 
him  less,  I  do  him  an  injustice.  If  I  give  him  more,  I  make 
him  a  present.  Wages  correspond  to  the  amount  here  indi- 
cated, and  that  which  men  habitually  pay  by  contract  must 
have  back  of  it  the  force  of  natural  right. 

It  is  not  necessary  to  point  out  how  far  .short  of  scientific 
precision  this  reasoning  of  Schmalz  falls,  Adam  Smith's  reas- 
oning may  leave  something  to  be  desired,  but  it  is  better  than 
that  of  Schmalz.  This  consuming  rate  of  Schmalz  is  not  the 
same  as  the  "lowest  rate  consistent  with  common  humanity" 


Politics,  Law  and  Economics.  In  Politics  he  favored  absolutism.  In  Law  he 
represented  the  standpoint  of  natural  right.  In  Economics  the  Physiocratics' 
views  seemed  to  him  the  soundest.  He  compared  the  doctrines  of  Colbert  and 
his  followers  to  the  Ptolemaic  system  of  Astronomy,  and  those  of  the  Physiocrats  to 
the  (.'opernican  system,  and  regarded  Adam  Smith  as  a  fad  (see  Roscher, 
Geschichte,  p.  49S-9).  For  his  treatment  of  systematic  Economics  see  Ilaiuilnich 
der  Staatswirtsckaft,  Uerlin,  1808,  and  StaatsivirtschaftsUhre  in  Brief  en, 
Berlin,  1S18.  For  his  characterization  by  Roscher,  see  the  latter's  Geschichte 
der  Natioital-Oekotiomik  in  Deutsc/iland,  p.  498. 


313]  P/^f<DECESSOA\S  OF /lEA'M.lNX  j- 

of  Adam  Smith ;  the  latter  was  a  consumption  rate  sufificient 
for  both  the  workman  and  his  family  durint^  the  entire  yea: ; 
the  former  was  a  rate  for  the  workman  during  the  time  of 
work.  Adam  Smith  had  in  mind  a  corrective  in  a  decrease  of 
the  supply  of  labor,  if  the  rate  fell  below  the  standard. 
Schmalz  was  appealing  to  conceptions  of  natural  right. 

Fulda'  is  important  only  as  a  trans-tion  from  the  old  to  the 
new  point  of  view.  While  holding  with  Adam  Smith  that  the 
state  of  wages  is  at  once  a  sign  and  an  effect  of  the  different 
states  of  society,  lie  attempts  to  show  that  wages  may  be  af- 
fected by  different  applications  of  capital.  To  his  mind  ma- 
chinery is  inimical  to  the  interests  of  labor.  Wages  are  more 
favorably  influenced  if  capital  is  applied  to  agriculture  rather 
than  to  trade,  since  in  manufacture  labor  is  displaced  by  the 
preponderance  of  capital  in  the  form  of  machinery.  From  this 
point  of  view  the  national  interests  of  labor  may  be  promoted  by 
change  of  national  industry  and  without  any  increase  of  capital. 

Sartorius,'  Lueder  and  Kraus  were  prominently  instru- 
mental in  introducing  the  teachings  of  Adam  Smith  into  Ger- 
many. In  the  extent  to  which  they  appeal  to  his  views  for  an 
explanation  of  wages,  they  differ  widely.  Sartorius  seems  to 
have  paid  attention  to  the  last  page  only  of  Adam  Smith's 
chapter  on  wages,  when  he  points  out  that  the  price  of  labor 
is  regulated  by  (1)  the  demand  for  labor,  and  (2)  the  price  of 
the  necessaries  and  convenier  ces  of  life,  and  then  follows  this 
with  a  discussion  of  the  influence  of  scarcity  and  plenty  upon 


>  Friedrich  Carl  von  Fulda,  born  1774,  died  1847,  student  at  Goftingen  1794- 
97,  and  received  in  i798-a  call  to  T  bingen  as  Professor  of  Kameralwisscnschaft, 
a  position  which  he  occupied  nearly  forty  years.  His  views  on  Economics  are 
found  in  his  Gmndscitse  der  aconomischpolitischen  oder  Kameralwissemchaflen, 
T.  bingen,  1816,  2d  ed.,  1820. 

»  George  Friedrich  Sartorius  was  born  1766  and  died  1828.  After  studying 
at  Goltingen  he  was,  in  1802,  appointed  by  that  University  Professor  of  Philoso- 
phy,  and  remained  in  that  position,  although  called  to  both  Berlin  and  Leipsig  as 
Professor  of  Kameralwissenschaft. 


I8 


GERMAN  WAGE  TIIEOIHES 


[3 '4 


m 
m 


Ifl- . 


these  two  factors.  Lueder  '  likewise  uses  only  a  part  of  Adam 
Smith,  holding  that  wages  will  be  above  the  minimum  only 
when  the  funds  from  which  wages  are  drawn  increase. 
Kraus,'  however,  constituted  himself  the  special  interpreter 
of  Adam  Smith  to  the  Germans;  accordingly,  his  book  read  in 
connection  with  the  table  of  contents  is  found  to  be  not  a  word 
for  word  repetition  of  tl  e  *' Wealth  of  Nations,"  but  a  good 
analysis  of  it.  Thus  his  treatment  of  wages  is  made  to  include 
all  the  main  points  of  Adam  Smith. 

Up  to  this  point  the  German  economists  stated  a  necessary 
minimum  wage;  a  new  idea  was  originated  by  Lotz,3  who  first 
stated  the  conditions  of  maximum  wages.  This  is  the  begin- 
ning of  a  new  and  more  fertile  treatment  of  the  subject.  Lotz 
pointed  out  that  competition  could  operate  only  within  certain 
limits,  the  lowest  limit  being  subsistence  wages  and  the  upper 
limit  that  point  at  which  wages  swallow  up  the  profits  of  capi- 
tal. All  economists  since  Lotz  have  observed  some  such 
limits.     Rau  was  the  first  to  elaborate  the  point. 

Rau  *  published  the  first  edition  of  his  Political  Economy  in 
1826.  The  doctrine  of  wages  formulated  in  the  first  edition 
received  scarcely  any  modification  in  the  .successive  nine  re- 
visions, of  which  the  last  appeared  in  1870.  Rau  was  the  first 
great  German  economist  to  recast  the  science  on  the  principles 
laid  down  by  Adam  Smith.     He  may,  therefore,  be  considered 

*  August  Ferdinand  Lueder,  horn  1760,  died  1819.  lie  was  Professor  of  History 
in  Braunscliweig,  1797,  and  in  1810  Professor  of  Philosophy  in  Gotlingen,  where 
he  remained  till  two  years  before  his  death.  lie  published  in  1800-1804,  Na- 
tionalinduslrie  und  Utaalswirl/isc/ia/t. 

'Christian  Jakob  Kraus,  born  1753,  died  1807.  He  s'fudied  at  Konigsberg and 
Gottingen,  and  in  17S0  became  Professor  of  Practical  Philosophy  in  Konigsberg, 
a  place  which  he  kept  till  his  death. 

'  Johann  Friedrich  Euscbius  Lotz,  born  177 1,  died  1838.  He  studied  in  Jena. 
He  held  many  government  appointments  and  was  for  a  lime  Professor  of  Law  and 
Economics  at  Bonn.  He  published,  in  1821,  Ilanabuch  der  StaatswirthschaJ ti- 
le hre. 

*  Karl  Heinrich  Rau,  born  1792,  died  1870. 


^ff 


315] 


the 


PREDECESSORS  OF  HERMANN 


'9 


founder  in  Germany  of  that  individualistic  school  which 
Adam  Smith  founded  in  England.  While  previous  writers, 
who  may  be  called  followers,  were  for  the  most  part  mere 
copyists,  Rau  makes  departures  in  statement  and  analysis. 
He  also  attempts  to  adapt  the  matter  to  the  conditions  of  his 
own  country.  Rau  was  the  first  to  enunciate  the  doctrine  that 
wages  are  only  a  special  form  of  price.  In  this  he  is  truly  a 
predecessor  of  Hermann.  To  understand  Rau's  discussion, 
we  must  recur  to  his  doctrine  of  price.  Price  results  from  the 
combined  action  of  three  forces:  (?)  the  value  of  the  exchang- 
ing good,  (2)  the  cost  of  the  exchanging  good,  (3)  competition. 
Price  cannot  go  higher  than  the  value  of  the  good  to  the 
buyer;  it  cannot  go  below  the  cost  to  the  producer;  it  is  de- 
termined somewhere  between  these  limits  by  the  relation  of 
supply  and  demand.  Turning  now  to  his  discussion  of  wages, 
the  value  of  labor  is  regulated  by  the  purposes  for  which  it  is 
applied.  In  most  cases  it  is  applied  to  secure  a  profit. 
When  so  employed,  t!ie  undertaker  is  in  a  position  to  give 
high  or  low  wages  according  to  the  amount  of  net  product  left 
over  after  other  expenses  are  paid.  It  might  go  so  high  as  to 
swallow  up  the  pure  profit  of  the  undertaker,  and  even  so  high 
as  to  decrease  interest  and  rent,  but  it  cannot  destroy  them, 
because  in  that  case  undertaking  must  cease.  But  from  the 
fact  that  even  pure  profit  usually  exists,  it  is  evident  that  we 
need  other  determining  principles. 

We  take  a  further  step  in  advance  by  applymg  the  principle 
of  costs  to  labor,  which,  in  skilled  occupations,  includes  sub- 
sistence and  previous  outlay  for  training;  while  in  simple 
occupations,  subsistence,  broadly  interpreted  to  include  family 
support  during  the  intervals  of  idleness,  is  the  principal 
consideration.  Costs  are  determined  by  (i)  the  usual  manner 
of  life  of  the  laborer  and  his  family  in  given  conditions 
of  climate,  customs,  and  the  degree  of  culture  of  the 
people  as  a  whole,  as  well  as  that  of  the  peculiar  class  to 
which  the  laborer  may  happen  to  belong;  (2)  the  price  of  the 


20 


GERMAN  WAGE  THEORIES 


[316 


commodities  which  enter  into  the  laborer's  consumption  h'st. 
In  this  way  is  determined  the  cost  of  production  of  labor. 
Wages  cannot  remain  permanently  below  this  cost,  for  in  that 
case  the  supply  of  labor  would  fail.  Here  we  have  the  limit  to 
the  fall  of  wages.  The  limit  to  the  rise  of  wages  has  already 
been  given.  Between  the  limits  there  is  a  wide  margin.  The 
force  that  determines  whether  wages  shall  tend  to  the  maxi- 
mum or  to  the  minimum,  or  remain  intermediate,  is  competi- 
tion: the  competition  of  labor  for  capital  and  the  competition 
of  capital  for  labor.  The  supply  of  labor  consists  in  the  num- 
ber of  men  who  are  resolved  to  work  for  wages  and  are  .seek- 
ing work.  The  demand  for  labor  consists  in  the  amount 
of  capital  which  is  destined  to  be  applied  to  the  employment 
of  laborers  in  profitable  undertaking.  If  the  population  is  very 
large  in  comparison  with  the  amount  of  capital,  then  wages 
may  sink  to  the  minimum  or  below  it  before  correction 
comes.  In  the  opposite  case,  it  may  rise  till  reduced  profits 
correct  the  tendency. 

In  these  views  Rau  differed  but  slightly  from  the  English 
school  as  known  in  his  time.  Af^am  Smith  and  Ricardo  both 
conceived  a  hypothetical  price  which  they  called  natural, 
above  and  belmv  which  actual  market  price  might  fluctuate. 
Rau  designated  an  upper  and  lower  limit  between  which  actual 
price  might  fluctuate.  Rau's  lower  limit  is  really  iden- 
tical with  Ricardo's  central  point.  The  fluctuations  in  both 
cases  are  caused  by  the  same  influence,  /.  e.,  relation  of  supply 
and  demand.  In  designating  the  upper  limit,  as  the  value  of 
the  good  to  the  buyer,  the  first  step  was  taken  toward  regard- 
ing the  influence  of  the  consumer  on  price,  which  in  the  hands 
of  Hermann  developed  into  a  theory  designed  to  refute  the 
wages-fund  doctrine.  There  is  one  other  respect  in  which  Rau 
and  the  English  school  differ :  as  to  the  part  of  the  theory 
upon  which  special  emphasis  shall  be  laid.  After  Ricardo 
makes  the  distinction  between  natural  and  market  wages,  he 
;says  almost  nothing  further  about  market  wages.     He  seems 


317] 


PREDECESSORS  OE  IIER.MANN 


21 

to  have  developed  his  system  of  distribution  from  the  point  of 
view  of  his  conception  of  natural  wages.  If  so,  he  would  nat- 
urally lay  greater  emphasis  upon  it,  as  his  readers  would  thereby 
the  better  understand  him.  In  the  passages  in  which  he  re- 
pudiates supply  and  demand  as  determinants  of  prices,  he  is 
to  be  understood  not  as  denying  their  influence  on  market 
price,  but  as  denying  their  power  to  determine  natural  price,  in 
which  he  is  chiefly  interested.  It  was  not  so  with  Rau 
Ricardo's  determinant  of  natural  wages  became  for  him  one 
of  the  liwiits  of  fluctuation  and  the  determinants  of  the  fluctua- 
tions assumed  the  central  place.  We  might  therefore  expect 
from  Rau  a  more  careful  study  and  statement  of  the  principles 
of  supply  and  demand  in  their  application  to  the  problem  of 
wages.  To  say  that  vages  depend  upon  the  relation  of  supply 
and  demand  is  to  say  almost  nothing  at  all.  We  want  some- 
thing more  than  a  definition  of  the  terms  employed  in  one 
short  sentence.  Such  expressions  as  that,  when  capital  is 
large  in  comparison  with  population  wages  rise,  and  when 
population  is  large  in  comparison  with  capital  wages  fall,  are 
too  indefinite,  and  bring  in  direct  comparison  things  which 
strictly  are  incapable  of  comparison. 

The  foregoing  discussion  shows  that  Rau  is  far  superior  to 
his  German  predecessors.  But,  in  justice  to  them,  it  must  not 
be  forgotten  that  he  wrote  under  the  influence  not  only  of 
Adam  Smith,  but  of  Malthus,  McCulloch,  Torrens,  Ricardo, 
and  James  Mill.  This  is  proved  by  the  fact  that  in  the  first 
edition  of  his  work  on  political  economy,  he  makes  frequent 
reference  to  these  authors  whose  works  had  been  translated 
into  German  or  French.  It  is  also  proved  by  the  fact  that 
many  of  his  general  propositions  are  found  in  the  English 
works.  For  instance,  his  remarks  on  the  proportions  between 
capital  and  labor  as  determining  wages  are  found  in  substan- 
tially the  same  form  in  James  Mill. 

Any  lack  of  economic  analysis  tending  to  mar  the  work  of 
the  early  German  economists  is  fully  atoned  for  by  the  publi- 


32 


GERMAN  WAGE  THEORIES 


[318 


cation  in  1832  of  Hermann's  "Economic  Investigations." 
This  work  marks  a  great  advance  on  previous  theoretical 
economic  studies,  and  even  to-day  exercises  considerable  in- 
fluence on  economic  thought 


1! 


CHAPTER   II 


HERMANN' 


Historically  considered,  the  "Economic  Investigations" 
of  Hermann  possesses  a  unique  interest.  Unlike  Adam 
Smith,  whose  "  Wealth  of  Nations"  appeared  at  the  end  of  a 
long  career,  Hermann  began  his  extended  activity  in  economic 
literature  witli  the  publication  of  the  work  by  which  he  is 
chiefly  known,  and  which  won  from  Roscher  the  judgment 
that  it  placed  its  author  "  among  the  most  eminent  economists 
of  the  nineteenth  century." 

To  the  reviewer  of  the  progress  of  economic  theory  in  Ger- 
many, the  work  marks  an  important  advance.  Finance  and 
Administration  were  ably  and  independently  treated  previous 
to  1832.  But  of  the  many  names  which  appear  among  con- 
tributors on  pure  Economics  during  the  half  century  following 
the  publication  of  the  "  Wealth  of  Nations,"  Rau  is  really  the 
only  one  of  note,  and  in  power  of  analysis  and  independent 
thought  he  is  much  inferior  to  Hermann.  That  the  work  of 
the  former  was  always  more  familiar  to  ordinary  students  must 
be  admitted;  but  that  is  due  to  the  fact  that  Hermann's  style 
is  more  difficult,  while  Rau's  book  has  decided  pedagogical 
advantages. 

It  is  to  Hermann's  credit  that,  living  in  a  country  which  was 
then  far  behind  England  in  commercial  and  industrial  develop- 
ment, and  hence  behind  her  in  the  development  of  capitalistic 
production,  and  the  advanced  relations  of  laborer  and  em- 
ployer, he  should   have  been  the  first  to  assail,  with  some 


'  Freidrich  Benedikt  Wilhelm  v.  Hermann,  born  1795,  died  1868. 
319]  as 


24 


(;/:a\v.ix  ir.u;/:  //noK/r.s 


(320 


nicasiiic  i>f  Miccrss,  thi*  w.j^cs  (uiul  th(.'t)iy  of  the  l'!nj;lisli 
ccoiioiiusts,  ;iml  siil)stiluti'  r«)i'  it  .1  Ihcdiy  whitli  appeals  in 
ncaily  every  systematic  lieatisc  on  pt>litical  economy  m  (Jcr- 
many  since  his  day. 

I. 

In  the  earl\-  German  wa^'e  hterature  there  appears  httle  to 
whiih  llermann  is  indebted.  The  numi-rons  wi iters  previous 
io  Kau  are  either  avowedly  exp«>sitors  of  Adam  Smith  or 
mere  cop)ists.  He,  however,  owes  sotiuthin^  to  Kan.  Kau 
was  the  lirsl  (lerman  economist  to  treat  wa^es  as  only  a  special 
form  ot  price  and  to  apply  the  funeral  princi[)Ies  aheady 
evolved  under  his  treatment  of  price  to  a  solution  of  the  prob- 
lem of  waives. 

It  is  from  this  point  of  viewth.it  1  lermann  opens  his  tlis- 
cussion  of  wa<^es.  According  to  both  men,  the  };emral  prin- 
ciple is  supply  and  deinaiul,  l)Ut  to  I  fermann  this,  so  stated, 
means  but  little.  We  need  to  trace  back  the  cau.sal  connection 
one  step  further.  Takinp;  the  demand  side  fust,  there  arc 
three  factors  which  determine  price.'  I*'irst,  the  individual 
value  oi  the  j;ood  to  the  buyer.  Secomlly,  the  buyer's  al)ility 
to  pay  for  the  j^ood.  Thirilly,  the  ilisposition  to  buy  as 
cheaply  as  possible;  the  buyer  will  therefore  pay  no  more  than 
the  price  reduced  by  the  competition  of  the  sellers.  Turnin^y 
now  to  tlie  supj)!)'  side  of  the  pidblem.  There  are  liere,  too, 
three  factors.  l'"irst,  the  seller  must  receive  as  nnich  as  the 
good  has  cost.  Secondly,  the  disposition  to  j^et  as  much  as 
possible;  the  seller  will  therefore  t;et  as  much  above  cost  as 
the  buyers  raise  the  price.  Thirdly,  much  ilepends  upon  the 
cxchani^e  value  of  the  means  of  exchanije.  If  in  the  above 
principles  we  will  substitute  for  seller,  buyer  and  {^ood,  the 
words  laborer,  employer  antl  labor,  we  shall  have  in  outline 
the  principles  according  to  which  wages  are  determined.' 

^  Staatswirthschaftliche  UntersuihHngtn,  1870,11.390-459. 
'  Staatixvirthsihijftliche  Untersuchungtn,  p.  460-487. 


|3;        ! 


32  «1 


fU-  KAr.lXX 


n 


Unfortunately,  Hermann  never  fniislicd  the  discussion,  hav- 
ing; treated  the  subject  from  the  standpoint  i -f  demand  only. 
How  he  wouhl  have  consideretl  the  piobleru  of  jjopidation 
under  the  cost  of  production  of  l.ihorers  we  have  no  means  of 
knowin}j.  Altliouf^h  the  treatment  as  we  have;  it  is  defective, 
yet  we  may  adopt  a  point  of  view  acc^nlin};  to  which  the  ap- 
parently one  sidetl  treatment  may  yield  results.  If  we  note 
that  population  does  not  readily  resptjnd  to  fluctuations  in  de- 
mand for  laborers,  we  may  assume  the  supply  side  of  the 
problem  as  a  fixed  (piantity.  Then  a  correct  statement  of  the 
principles  of  demand  may  yield  the  determinant  of  waj^es  for 
short  periods;  /'.  t\,  assimiin^  Hermann's  method  to  be  a 
correct  one. 

Hermann's  views  may  be  conveniently  considereil  under 
five  heads. 

I.  The  first  important  (juestion  is,  to  whom,  or  to  what  class 
i.s  labor  valuable  i*  who  are  the  real  buyers  of  labor?  To 
these  (juestions  Adam  .Smith,  Ricardo  and  James  Mill  had 
given  the  unecjuivocal  answer,  tli-  emj)loyer  of  labor — the 
capitalist,  liut  Hermann  answered  that  the  real  consumer  of 
labor  power,  and  hence  the  class  to  which  it  has  value,  is  the 
class  which  consumes  the  laborers'  products.  The  nature  of 
the  case  is  not  changed  by  the  fact  that  the  protlucer  hires 
and  rewartls  the  labor  directly,  while  the  consiuner  is  unccm- 
scious  of  the  labor  involved  in  the  product.  The  consumer 
is  nevertheless  a  buyer  of  labor.  The  undertaker  is  considered 
by  Hermann  a  mere  labor  purveyor,  a  sort  of  consumers* 
agent,  who  for  his  outlay  in  wages  seeks  a  recompense  in  the 
price  of  the  goods  made  by  labor. 

This  doctrine,  not  elaborated,  but  rather  treated  as  self- 
evident,  is  the  foundation-stone  of  Hermann's  tiicoretic  struc- 
ture, and  upon  its  truth  or  falsity  will  depend  the  soundness  or 
weakness  of  his  alleged  contribution  to  this  subject. 

n.  While  Menger  properly  has  the  credit  of  working  out  in 
detail,  and  tracing  to  some  important  result  the  conception  of 


26 


a/'.KMAX  h:4Ck  ti/kokiks 


[322 


stages  in  the  productive  process,  the  idea  is  clearly  suggested 
by  Ilerninnn.  Only  a  small  fraction  of  the  number  of  labcrers 
engaged  in  productive  activities  are  employed  in  putting  on  the 
finishing  touches  to  commodities.  Many  are  getting  out  the 
raw  materials,  and  between  miners  and  agriculturalists  at  one 
end  of  the  lino,  and  labourers  ministering  directly  to  con- 
sumers* needs  at  the  other,  there  are  whole  groups  of  laborers 
pushing  along  the  commodities  from  a  lower  to  a  higher  stage 
in  the  transformations  from  crude  products  of  nature  to  the 
manifold  refined  forms  suited  to  serve  man's  wants. 

Hermann  makes  useof  the  theory  to  establish  a  point  which 
seems  not  to  have  attracted  the  attention  of  subsequent  writers. 
Most  theorists  since  Adam  Smith  have  felt  the  necessity  of 
distinguishing  between  particular  and  general  wages.  They 
considered  that  when  they  had  determined  a  general  law  of 
wages  they  had  not  accounted  for  differences  of  wages  m  dif- 
ferent employments.  Hence  we  have  repeated  so  often  both 
in  English  and  German  treatises  Adam  Smith's  familiar 
points :  wages  in  particular  employments  are  determined  by 
differences  in  agreeableness  of  employment,  expense  of  learn- 
ing, trust  reposed,  etc.  Hermann  offers  a  different  view  when 
he  proclaims  a  difference  in  wages  according  as  the  enn)loy- 
ment  is  remote  from,  or  adjacent  to,  the  final  stage.  Hakers 
and  butchers  always  receive  higher  wages  than  weavers,  and 
those  are  in  the  most  unfavorable  position  who  arc  laboring  in 
the  initial  stages  of  production,  as  in  mining  and  agriculture. 
The  explanation  of  these  alleged  facts  is  that  the  final  \)\od- 
ucts  are  subject  to  constant  daily  demand,  and  the  dealer  in 
such  commodities  can  and  must  offer  his  laborers  higher 
wages  than  he  who  produces  what  can  remain  for  a  consider- 
able time  in  one  stage.  The  dealer  in  the  intermediate  prod- 
ucts must  make  good  his  wage  outlay  in  the  price  of  the 
product,  and  in  order  to  insure  this  he  keeps  wage-  it  as  mod- 
crate  a  figure  as  possible.  All  who  purchase  from  him  buy  as 
cheaply  as  possible.     This  means  that  a  constant  pressure  is 


323] 


I/r.KAtAXN 


af 


broiiKlit  to  bear  on  all  those  in  the  previous  labor  steps  to 
limit  the  wage  outlay.  "  U|)on  all  the  production  staples  there 
Tulcs  the  economic  motive  to  furnish  to  the  final  purchaser  as 
cheaply  as  possible  the  labor  contained  in  the  protluct."  The 
producer  of  the  final  product  is  not  so  pushed,  since  his  com- 
modity is  subject  to  pressinf^  daily  demand. 

In  coiuu'ction  with  this  there  is  a  subordi  late  point  which 
is  worth  menli<niing.  What  are  the  general  principles  accord- 
ing to  which  a  change  of  price  of  goods  in  the  final  stage  will 
.affect  wages  in  the  earlier  stages?  Hermann  answers  that 
this  depends  upon  the  time  during  which  the  |)roduct  delay.s 
*nt  a  given  stage.  The  shorter  the  time,  the  more  sensitively 
■will  the  rate  of  wages  responil  to  changes  in  the  stages  above. 
It  will  also  depend  upon  the  readiness  with  which  undertakers 
and  laborers  can  betake  them.selves  to  other  employment.s. 
Something  depends  also  upon  whether  the  raw  material  or 
the  partly-manufactured  product  is  limited  to  a  definite  use, 
or  is  capable  of  .several  applications. 

III.  Mere  demand  or  desire  is  powerless  to  affect  wages 
unless  there  exists  also  the  ability  to  pay.  To  know  this,  one 
must  know  the  .source  of  payment.  Adam  Smith  and  his 
immediate  followers  considered  income  and  capital  as  the  true 
sources  of  all  payments  for  wages.  Ricardo  laid  emphasis 
upon  capital  alone.  Against  Ricardo's  view  Hermann  took  a 
decided  stand.  A  mere  statement  of  his  argument  reveals 
strong  feeling.  Whoever  would  get  the  labor  he  needs  or 
wants  must  have  the  means  to  pay.  In  the  case  of  household 
servants  it  is  plain  that  they  are  paid  from  income.  With  the 
fluctuation  of  incomes,  fluctuates  the  effective  demand  for 
servants.  It  is  evident  that  to  pay  them  out  of  the  stock  of 
accumulated  wealth  would  be  wastefulness. 

There  is  no  labor  which  docs  not  pertain  to  a  last  consumer. 
This  is  as  true  of  labor,  for  labor  contractors  or  undertakers, 
as  of  labor  in  direct  personal  service.  However  numerous  the 
technical  steps  in  the  production  may  be,  the  finished  product 


28 


GERMAN  WAGE   THEORIES 


[324 


■  ^h 


¥■'<■. 


at  last  becomes  an  object  of  use,  either  temporary  or  lasting. 
All  the  intervening  steps  from  the  beginning  to  the  end  have 
been  taken  for  the  sake  of  this  ultimate  use.  And  the  final 
recompense  for  all  previous  outlays  must  find  its  source  in  the 
payments  for  the  use  of  these  final  objects.  "  Not  merely  all. 
the  labor  applied  to  every  labor  step  in  producing  the  imme- 
diate product,  but  also  the  labor  contained  in  the  replacing 
and  use  of  all  kinds  of  fixed  capital,  is  at  last  to  be  made  good 
by  the  payments  which  the  ultimate  consumer  of  the  product 
makes."'  The  wage  outlay  of  the  last,  as  well  as  of  all 
previous  steps  of  manufacture,  is  contained  in  the  pricv.  of  the 
final  product.  Capital  cannot  be  the  source  of  wage  payment, 
for  if  restitution  out  of  the  product  fails,  production  and  hence 
wage-payment  must  cease.  If  production  were  continued 
without  reference  to  the  final  demand,  the  depreciation  in  value 
of  the  raw  products  would  be  a  severe  experimental  demon- 
stration to  the  producer  that  his  capital  was  not  the  source  of 
wage  payment.  Hence  we  get  the  following  result.  The  true 
and  continuous  source  of  the  compensation  of  production  is 
the  income  of  the  buyer  of  products  for  his  own  use.  Capital 
is  only  the  help-means  to  production,  not  the  source  of  reward. 
"  It  is  unthinkable  that  wages  depend  upon  the  greatness  of 
the  disposable  capital  in  relation  to  the  number  of  laborers."'' 
It  depends  in  the  long  run  always  upon  the  price  which  the 
active  buyers  can  and  are  willing  to  pay  for  the  product.  "  To 
hold  that  the  source  of  wages  is  capital  is  not  merely  a  theoret- 
ical error,  but  also  in  practical  affairs  is  a  doctrine  of  the  most 
serious  importance ;  because  it  fortifies  the  laborer  in  the  super- 
ficial view  that  the  undertaker  is  his  wage-giver,  and  that  upon 
him  depends  the  scale  of  his  wages.  If  the  laborer  holds  to 
such  an  appearance  of  the  truth  and  becomes  hostile  to  the 
undertaker,  participating  in  acts  of  violence  against  him,  there 
is  no  cause  for  surprise.     That  the  doctrine  of  science  should 


>  Staats,  Unters.,  p.  473. 


« Ibid.,  p.  477. 


325]  HERMANN  2Q 

strengthen  the  selfish  procedure  of  ignorant  laborers  in  strikes, 
by  its  doctrine  that  the  source  of  wages  is  the  capital  of  the 
'entrepreneur,'  shows  the  need  for  caution."' 

IV.  The  two  considerations,  need  of  labor  service  and  abil- 
ity to  pay,  are  operative  from  the  side  of  the  "  entrepreneur."  But 
these  are  conditions  which  relate  to  but  one  of  the  contractors. 
It  is  obvious  that  in  general  under  the  regime  of  free  competi- 
tion, whoever  employs  labor  will  not  grant  higher  pay  than 
the  lowest  at  which  he  can  obtain  the  appropriate  service  in 
sufficient  quantity.  How  low  wages  may  go  is  influenced 
somewhat  by  the  competition  of  laborers.  Unfortunately 
Hermann  did  not  profess  to  have  treated  the  wage  question 
from  the  side  of  supply  in  any  thorough  manner.  We  do  not 
find  that  he  took  account  of  numbers  and  the  forces  which 
determine  them.  He  confined  himself  to  a  few  remarks  on 
forces  which  prevent  the  ready  access  of  labor  to  the  market. 
Long  before  Cairnes'  wrote  on  non- competing  groups, 
Hermann  had  said  that  efficient  competition  in  the  labor 
market  exists  only  between  groups  with  approximately  like 
technical  skill.  A  man's  power  to  compete  is  limited  to  the 
employments  with  which  he  has  some  familiarity.  For  an 
entire  group,  the  duration  of  this  limitation  is  the  time  which 
the  young  generation  requires  to  fit  itself  for  a  new  occupation, 
i.  e.,  an  occupation  differing  from  the  one  usual  to  the  group. 

But  the  hindrances  are  not  confined  to  those  between 
groups ;  even  within  the  group  there  are  barriers  in  the  cost  of 
travel ;  delays  in  changing  settlement ;  reluctance  to  receive 
strangers ;  difference  in  speech  and  custom ;  the  lack  of 
sociability,  and  religious  prejudice,  etc.,  etc. 

V.  So  much  for  direct  competition.  But  Hermann  regards 
indirect  competition  as  often  more  real  and  effective  than  direct. 
This  is  the  labor  involved  in  competing  goods.     "  It  shows 


'  Staa(s.  Uttters.,  p.  478. 

*  Some  Leading  Principles  0/  Pol.  Econ.,  p.  66, 


30 


lil'lKMAl^  WAGE   THEORIES 


[326 


itself  in  the  (iiiantity  of  foreij^n  products  sold,  which  necessarily 
withdnivvs  from  t)iir  laborers  just  so  nuich  opportunity   for 
l.ibor  as  the  foreign  importations  would  have  required  on  our 
part,  hat!  we  made  the  gooils."     This  withdrawal  of  opportun- 
ity to  labor  arises  as  soon  as  the  foreign  product  can  be  sold 
somewhat  cheaper  than  that  produced  with  home  labor."'     If 
the    home    production  is  to  continue,  either  wa;:;es  must   be 
lowered,  or  other  chan^^es  in  the  conditions  of  production  must 
be  made.     Hermann  was  well  aware  of  the  importance  of  the 
factors  of  production  other  than  labor,     iupial  labor  with  him 
does  not  always  mean  equal  efficiency.    He  adduces  many  ex- 
amples to  show  that  the  products  of  higher  paid  labor  can 
hold    the    market    against   products   of    cheaper    paid    labor. 
When  Hermann  wrote,  wages  were  higher  in  England  than  in 
Germany,  yet  cotton  and   iron  were  regularly  imported  into 
the    latter   country.     The    result    was    that   the    higher   paid 
Knglish  labor  displaced  the  cheaper  paid  German  labor.     He 
laid  down  the  general  proposition  that  those  laborers  can  com- 
mand the  market  whose  products  can  on  the  whole  be  sold 
cheaper.'       It  was  clear  to  him  that  many  elements  besides 
wages  must  be  taken  into  account  in  conmianding  a  market. 
Cost  of  raw  material,  access  to  .sources  of  power,  facilities  of 
transjjortation,  efficient   management  and    efficient    labor  are 
all  of  importance.     When  all  these  elements  are  given  proper 
weight,  it  is  clear  that  it  is  possible  for  a  country  to  command 
a  market,  and  at  the  .same   time  to  pay  high   w.'.ges.     It  is 
equally  true,  however,  that  by  inattention  to  conditions  of  pro- 
duction other  than  labor  conditions,  or  by  relative  disadvan- 
tage with  reference  to  these  conditions,  a  body  of  laborers  may 
be  entirely  defeated  in  their  endeavors  to  raise  wages  by  limi- 
tation of  their   numbers    through    lower   birth   rate.     If   the 
limited  home  supply  of  labor  diminished  the  home  product, 
there  is  no  guarantee  that  prices  will  rise,  since  foreign  com- 
petition may  prevent  it.3 

'  Siaatiw.  Unicrs.,  p.  483.  '  IbiJ.,  p.  483.  »  Uid.,  p.  483. 


y 


1 


IJ 


327]  HERMANN 

n 

Hermann's  treatment  of  indirect  competition,  at  first  sight, 
seems  to  lend  support  to  the  chief  contention  of  the  protec- 
tionist in  respect  to  wages.  The  free  trade  doctrine  has  en- 
joyed no  slijjht  advantage,  in  that  it  could  quote  in  its  support 
the  teachings  of  nearly  all  the  respectable  economists  for  a  cen- 
tury or  more.  It  would  be  no  slight  gain  if  the  authority  of 
Hermann  could  truthfully  be  used  in  support  of  protection. 
While  some  support  might  be  gained  from  him,  it  will  appear 
from  the  .stat(  nient  given  above  that  he  was  free  from  some  of 
the  commonest  errors  observed  in  the  modern  discussions  of 
the  tariff.  It  would  be  hard  to  find  in  his  discu.ssion  support 
for  the  "  pauper  argument,"  unconnected,  as  it  coi.imonly  is, 
with  rigid  investigations  as  to  conditions  of  production  other 
than  labor  conditions.  It  is  too  often  assumed  that  "  cheap  " 
labor  will  inevitably  displace  more  highly  paid  labor.  Accord- 
ing to  Hermann's  view,  pauper  labor,  far  from  being  a  danger- 
ous competitor  of  better  paid  labor,  might  easily  be  displaced 
by  the  latter.  The  real  importance  of  indirect  competition, 
then,  lay  in  the  fact  that  such  competition  was  made  possible 
by  various  favorable  conditions  of  production.  By  this  means 
capital  might  be  the  laborer's  most  relentless  competitor, 
thus  rendering  u.seless  his  efTorts  to  better  his  condition  by 
limiting  his  numbers. 

The  treatment  of  direct  competition  is  open,  of  course,  to 
the  charge  of  inadequacy,  but  this  is  true  of  all  beginnings.  It 
is  less  to  Hermann's  discredit  that  he  did  not  complete  the 
theory,  than  it  is  to  his  followers,  that  they  ignored  the  theory 
altogether.  The  objections  which  have  been  urged  against 
Cairnes'  idea  of  the  limits  of  competition  in  group  arrangement 
may  be  urged  against  Hermann's  idea.  They  may  both  have 
truly  described  conditions  at  the  time,  but  the  extension  of 
machinery  and  modern  methods  of  production  makes  modifi- 
cation necessary.  Both  writers  appear  to  have  had  in  mind 
principally  a  .sort  of  contingent,  not  an  actual,  competition.     It 


■i   il 


(,7A'l/fA      ()((,/■      //rV.  ' 


I  r-M 


1' 
■1 

,5'; 

■il 

1 

,  li 

;| 

f4 

j.. 

tlipintlcil    upon  llii    (i.m.lcirm  c  ol    (lie   \  min!',    (mm  (lir  mi  <  n 
p.ilioit  (»(  p,u<  111';  li>  ollin   Kinds  nl  woiK         I  lir  llKdiy  wms  mi 
t(  niKiI    lo    .in'.wt'i    llii-   t|iic '.lion,  \\  liil    r;  Ihr   Inn  col   ,i  iimh''; 
4iMn|irtilion   il    III'  It  II  ".  Id  I  h.invi'    Ins  im  *  ll|t;)l|nn  i'        Il     (lid    Mi)| 

<1i  t<  nnuii-  ,ii  lii.il  (  iMiiprliiinn  slimilil  .i  m,\\\  icinain  in  lir.  oi  i  n 
p.Uion  '     «  >M  I  III  in, inn's  |», II I  llir  dtn  liinc  was  iitj'.ilu  c       I  In; 
»s  iliii-  In  llir  l,ii  I   lli.il   lie  ilitl  nut  «um|»k'l<'  lilt'  stnil)'  as  wr 
t\\A\   Mippi'si'  III'  liad  plainu'd. 

I  lis  llir, I  lli.il  \\a"rs  ail'  Injdi  oi  low  ai  <  itidm|',  as  llir  lalmi 
»s  Ml' II  lo,  I'l  iniioli'  limn,  tlic  linal  ''l.t|;'"  <•(  jtitidiii  limi,  is  new 
and  inlrir -lill;',,  l>nl  ilor.  iinl  srriii  In  lia\r  lai(;r  sii|»|i(iil  lioin 
fsuls  lU  »  omp.n  in;',  w.ijm^s  paid  in  llir  culur  slajMs  ol  pio 
dill  hiM\  Willi  lIlKsr  in  llic  lalri,  lails  i  mild  In-  liniiid  wIik  li 
would  Mi'iii  lo  siippoil  a  tlncitly  oppo'iilc  (onrliision.  lie 
points  oiil  no  liniilcd  special  lalcnl  as  n<'i  ("ssaiv  1<>  prilmni  (lie 
la'vM  noai  llir  linal  ''t.ijMv  llcnotHcs  no  olislai  Ics  lo  i  mii 
pi'lilion  in  till"  linal  [Monp  wliuli  do  nol  appl\'  to  oilur 
jMoirns  111'  pioxidcs  loi  toniprtition  in  all  llir  pioiips  lioin 
thi-  iii'w  populations,  and  it  do<'s  not  appcii  rlcai  wli\'  in  ,i  leu 
j^cnri  ations  nn|Mations  limn  ollui  jMoiips  would  not  icdiiti" 
waju's  to  a  jnMirial  Icvi-l  loi  liKr  skill  II  tlinc  wcir  ifa.ons 
m  i;('iuMal  »'i  onoinu  tondilions  wli\-  tlic  liipjust  wajM-s  lonld 
he  |>aid  loi  woik  on  \\\c  linal  sta};r,  and  it  wcir  at  t nail)- 
<i|V>-nd.  tlu'ir  would  he  a  trntlciUN'  to  oven  unvtl  tlitisc  tnrnpa 
luMis,  a  ttMuKMUN'  whuh  wtniM  ivsull  in  ictlnrini;  waiM's  tti  tin* 
K'\ol  ol  \\\\   m  otluM  omipalitins. 

'V\\c  most  mtoirstin;',  point,  aiul  t(Mtainl\-  tin-  most  iinpoil 
ant  lot  laliM  »U'vi-lopmrnts  ol W.iju-  thctMiivs  in  ( ici  nianw  is 
1  liMtuann's  tivatmrnt  ol  tin-  w aiu-s  hnul  tho«)i)'.  lUit  tins  point 
is  so  itUiiuatoly  itMnu\  trtl  with  the  t(\ulnn^;s  ol  Ih-iniann's 
suiwssois  that  a  disvtissiot\  t>l  it  will  he  tU'lriictl  till  tlu'  p,itHip 
to  whivh  lli-ttnann  hrlonijs  is  buni^hl  iiiulcr  review. 

'J.     Iv     n.wk,    I  imiif  C't    i'iit>if'f(i(ui*i      Scr   riiiiU    niiil   lliildinc'^,    M,y.{fm 


?•-'! 


(  iiAi'ii'.k  III 


IIIKMAN'r 


.!/(  I  I'T.fiir-; 


''"I'M'    ;iif   ,1    iiiiiiili.  I   .,(   <  (  oii'iinr.l  ,  wlio    ,iif    llir    folN.vvri 'i 

<»•  I  I'lllMim  III  IIk  ■,r||.,r  lli.it  lliry  ,,,,  |||f|iir|„  ,  ,|  \  ,y  ],y,  |,.,|,  |,. 
IMi;'..  Illll  I'.KIll.lIKi  !•;  <,|lr  in  III.  ■,  I,.,,-  Ili.il  li,.  ,|,,,,|,  ,i(|f||||(,Mt; 
In  llrmi.Ulir.  III.  ,,|y.  /Ml  Ik  .11,;  |i  r,M|,|;ii|r,  |i;|.,  ||i;i<lc  <,c  v<' ill 
<  onlllldlllDlf,      Id     llic     Mllijci  t      III      H  (  (  III      yi.ll,,     IK.tlllli:'      III'.!-- 

Iuml;imciil;ii  has  a|;|)(,ii((|  oii  In.  iImoiv  '.I  wmjm ',  mil  r-  Ik: 
|ml)lislic(l    llic   <.'i'„iy   in    llildrhi.iiirr',   j.iIiiIkk  Ik  I,  111   iH^i.fMi 

Die     l,<lllc    V'lll    <!(  II     I  ,(/||||',l(  l['r|  |||||.«  II    Milt    Ik'.OIkN   |(  I     |-,'i|f|c. 

si(  III   .iiiT  (iir  .■iij.|k  ,  Ikii   VViillr,(  li,ifl'.l<  111' I,'"      Tins  is  ,1  ,  1  ili- 

(  ism  (i(  the   JMij'jr.li  view;  on  vv,i;;r  ■,,  in  the  (  i,\\r.i-  oi  vvliif  li  lir; 

own     i(lc;r,    arc    made    appatciil.      'I  lie    rcnlMJ     point     ai    lir; 

<:riti(  iMii  is  his  opposition  p,  ih,-  livily  <,[  iIk:  (mul   involv d  in 

the   (loclrinc    o(    the    \va[;rs  IiiikI,    as    laiij-jit     \,y    iIk-    ](  arlin^j 

(•((tnomic    wiilcis   ii|)    lo    thai    liinr.      lie    (  xonciatcs    Arlairi 

Sniilji  (Voin  llic  iinpnialion  of    Iiavin;;   (onrcivrfj   iIk-  fmifl  ;,s  ,1 

fixed   «|uanlily;   for,  altlK)n};li  lie  was  iIk;  flr.-.t  I',  use  the  word, 

fund,  and  to  speak  of  it  as  a  source  of  waf;es,  when  eajiital  and 

land  aie  inlrodiKcd  as  (  laiinanls  of  a  sjiaie  in  ihe  piodiietion, 

vva^jes    no  longer  (  onespond  with  tolal  produetion,  anrl   horn 

this  point  on,  are   not    eoiucived  as   fixed   by  the  ariioimf  t,{  a 

fund.      Ilavinj;  placed  Ad, mi  .Smith  to  oik;  side  as  u(,\  op<  n  to 

critieisin  on  this  point,  Ihcntano  proceeds  h;  i(  fly  to  ■  limv  that 

when   other  eeonomists    llioiit;hl  they  were   ha.sin^r   their  (Joc- 

Irine  on  a  fixed  hind,  they  were  iiii.stakcn.      Rieardo'.s  doctrine 

of  llie    relation    between   wa^'es    and    pjofit    assiinie.s   a    fixed 

amount.     At  the  same  time  hi.s  theory  of  the  .standard  of  life 


'  s 


cc  ynhtbiUher  Jiir  Nationaloekonotnie,  i    Fo!gc,  vol 


3291 


xvi,  jip.  251   281. 
3J 


.^4 


(,V  ,\M,'  !.\     ir.h./'    !  II!  OKH-S 


ss 


I) 


,»s  (li'ifi  niiiiinp,  \\.(r,t ".  iu,(K(-'.  Ii\it\   iiU)'<v,MMc,  dt  jx  inlini;  .is  a 
st.nuI.Uil    doc,    \ipon    till-    l.iboitp.'  '.nliit't  tu  ('    nh.r.iiic    nl    life 
lU'Ctls.       1  hf,    »li,U!;»\   1\»>\\  (A  (I ,   »>l    .\    I.ii  K    <>|    ioi\M\lriu\    III 
lv\(ri\  two  p.iils  ('I  .1   tli<  .M\    ilc.(  '.  iinl    ■-(  (  111  Id  I'C  Wi  11   Iniiiiili d. 
Iioin  tlu"  t,ii  I    lli.il  '>ti  1,11    .r<    Kii.iiilo  t  tMi'.iili  I (  il   llir    '.(, mil. 11(1 
ol  lili'  .r.  lU-Ui  lumiU;',  \\  .i;M'-.  il  \\  .r>  .1  iiimmumi  '.(.iiiiI.ihI  w  Iih  h 
\\c   h.ul    m   miiiil,  .iiin   till',   ill'   I  oiu  cu  cil  .r.  I  oiri.int    Im    Imnj 
pv'iiotls       iMrMl.uio  .il'.o  (1(  nil",   .Sciin'i'',   *  I.iun    (o   !i.i\(-   ( '-l.ili 
lisjuil  tlu'  liMlN  ol  tlu'  liiihl  upon  ,1  '.<  unlitu    li.i'.r..      ,Ai  «  okIiiij; 
to   S(-niiM,  ihc  \\.i!;i">  Imiil  (lipciiils  upon  llic  k  I.ition  m  \\linh 
the  ontur  pioiiiu  t   r-  ilr-l  i  ilMitcil   I'clwiin    l.iboi  ci  ■,  ,intl  t  .ipil.il 
i',ts  ^^\\  tlu-  ni.iijMn  ol  (  nil  i\  .iliiMi.       I  Ins  i<l.ilion  (Upciul'.  upon 
tlu'    i.ilo   ol   piolil.  wliuh    ui   tntn   »l(|uinl',   upon   tlu'   sniplns 
.il>o\i-  tlu-  itvt  ol    l.ihoi.      In  '-lioil,  the  litnil  wli'tli  iK  Ici  ininc, 
\v.i;;v.-s  IS  iImIi   thin  nuncil  In   w.nMs.      )olui  Stn.iil    Mill   is  as 
Iittlr  siuw'sslnl    .IS  \\\c  ollu-is  in  <-s(,ililisliin;'    the   lixily  ol   IIk' 
tiiiui.      ll.unu;    pl.u'Cii   iril.iin    Iinnl.ilions  upon  IJu-  tci  ins  cm 
plovi'il.    Mill     hoUls    tli.il    w.uH's    (Kpcnil    upon    the    icl.i    on 
ot  p(>piil.\tu>n  .\nil  v'.ipit.il.      lit-  tnilluM  .st.itcs  ili.u  tlu\'  t.mnot 
In-  .itVoiit-il    liy  anythin|.;  (  Isc-.      "  W'aj'.cs  c.iiinot  use.  Imt  by  .in 
nuii-.isool  llu- aL:i;u-j;.iti- lunils  finpltn  ('(1  in  hump,  labour,,  oi 
hy  .1  iliniinntion   in   tlu-   nnnilxr  «>l   romprlilois   lor   lure;   nor 
t.ill,   r\i\  pt    (.-illu-r   liy   .i    (Inniiinlion   ol'  llu-   Inntis  dcvoU'd    to 
payiiis;    l.ilior,  or  by  .ui  uu  u-.isi-   in    tlu-   numlici  ol    l.iboicis  to 
In-    p.iul.""'      lie    lu-n-   .issiinu-s    .i  icit.un    dt-jMct-ol    fiNity.  Imt 
l>u-nt,ino  ]i(Mnts  out  tli.it   INIiU's  idi-.(  ol  c.ipit.il  .lUows  xciy  IiltK- 
dc-timtciu-ss  to  tlu-  hind,  siiui-  ho  ni.uli-  tlu-  distiiution  hrtucin 
capital  and  tuU  vMiut.il  to  crntu-  \\holl\'  in  tlu-  intention  ol'  the 
owner,      lluni.m  iiilintion  .is  to  tlu-  paituul.u-  cniplojnunt  of 
wealth  is  too  (.•h.iiii^c-.ibU-  to  allow  fixit)-  to  Ix-  pretlicated  ol  its 
object.     l'"or   instance,  the  onlin.iiy  exiL;encies  ol'  life  ma\-  u-- 
quire  that  what  to  li.w  was  intendetl  to  be  devoted  to  the  ein- 
ploynicnt  of"  labor  nia)-  lo-iuonow  be  .spent  on  a  joiuney.     An 


*  Pntiiit'Ui  of  Pjlili.al  I'.onciny,  Hook  ii,  cli,  xi.  !^  i. 


3.?' 


in- KM  I  vv,  \r<-<7  ', ■wi/,vv 


35 


i 


'•""•'■•'''''""•<""''"'    !;'"m|..  ,,,,|;lil    cimIv    .li.in:;,'    ||„     u,i(;.". 
'"'"'   'V\    •"ll.mi;c   III   llir   ,,1111,1   ,,|  II, r  (.ii,it.,li:,|   .,/'l,,  ,|,..  ,|.    .lHj- 
illlol,    (i|    Wcillll    ,1)    lip,    |)M\,,  •,•,!,, II 

"'"""""  '•'"  "•■"■''  •"  "'•l.i.lri.,1,1,-  1,„,,||,  ||„.  ,„,,.,||mI,I\-  ,,1 
•'"  III.  I. ■.,.,•  ,,|  u., ;:<•■..  .Hl,.  ,  .,1  1|„.  ,,,,|  nl  ..,,1,1,111,  ,..  |,y  ,,„„. 
I"'"'"-    "'""    '"   I'-'V  liir.li'  I    I'll"',   l-i   ..ini„„„|ili.   ,.  ,„',,|  il„. 

•"'•'    "'   ''lll|'l"\«l   •   llll,Ml!;ll  .,  .hmmilll.,,!  ol    piohl   .  II,     ,,,..,,.  ,|. 

•''•''    ''    '  ""'•'   '"■   •''    '•"•   '  '»'!    "I     '••II  •nillCf,  nllly    il     III,   ,..   ,,,.',',,.   ,, 
'*"''"'^''    ""   "  •!  •''    "I    "I'llMII'l    I..1    .  ..ir.Ulll.lhj,     |;,mm|  ,,  ,„    .,    ,,  l.ilivc 

'';''■"''•'     "'   l'i'"l'i'l  '•>•  ni<)ii..|H,iy.      A....,,|i,,|:  I,.    11,., ml, ...'h 
VIC'.;.  Ill  uii.il.  V.  !•  \v.i\'  .  ,.iiM,,,,(  I  ,   .11,.   (,,i,,.,i   I,,   I,,.,,,   ,1,,,  1,,,,^ 

«''"    "•    <'"'    I>l;:ll--|    W.U;..    Ill    nil,.    I,l.|„,|i,   II    uii;    l„.    I,.,, M.I    lli.it 

their  |..)\vci  ,,|  (l.in.iiHl  l..r  .-IIkt  ,  .,ii,m,„|,ii,  .,  I,.,.,  I,,,,,  |,i,,|.(,r- 
ticn.it.iy  u..,lu,ic(!.  .m.l  llu|.,  lalmir,..  ,„  ,,,I„  ,  |„.iii,  h,  ..  ■.uUvr 
ai()ii,..s|.(.n,i,„.r  loss.      It  is.vidciil  lli.,i.,|  uc  cn,  ,  i.,,,,   I  I,.„  n 
ton's    view.  allii..ii};li  we  iii.iy  iiol    li.,i,|    l,,.,    (ix,,!   w.ij;.- .  |,ii„|, 
wo   icilly   Mij.slilutc   loi    111.-   !,,||,.,    .,   (•,x,.,|    ,n,,„ii..-(u',i.l.    .in. I 
must    .i.liiijl    llu-   tiiitli    ..(    (lie   ..|,i,ii..ii    hcMhy  Ihc  vvMi;...'  (uiul 
tliciiist.,   Il,.,i  Miu:  (lass   ..I   l.il.oicr..  ,  .„,   ,i„  ,,.,.,,.  llu,',- vv.ir.-H 
only   .11   tlir  ,  xpcns,-  ,,|   ;,n,,|||,  ,    ,1.,.,,,,      |'„, .„(.,,„»    |„,|,|..    ,1',,,^ 
Tliomtoii  h.is   li.ro  m.ulc  a  iiiislakc,  wliuj,  ,,,i,mm.,  i„  ,„,i  suf- 
ficiently analyzin^r  i|,e  ci,.,M^c.l  <■<  .„i,,n,i.  c  ..ihI.Ih.h..  ,,|  |.,|,o,.  is 
as  cousin, UMs,  IikmijiJh  .,|,.,„i  |,y  .,  ns,-  „,  ^\,^.^,  w;,yrs.      Uy  as- 
Niimin;;   a  (ixcl    iiu;,.,,,,-.  ,|    ,■.  tni,-  llial    l.y  m,   miii.  I'l  .r,  mk  r.mr 
IS  allowed   to  cxpan.i   in  one  , In,, don  il    must  coiiti,,,!  ,,,  ,,,1- 
othcr.      Hut  Hrciitano  continii(..s  to  ai-;iic  that  \,y  the  v.  ,y  coii- 
ditions  ol  thcsMi.ix.sition.thc  iahoics'  income  is  not  r,xe.l,l,iit 
increased.     'Iherelor,  in  their  case  no  ccnnr.u  lion  is  neressary. 
Fnrthennore,  tlie  extra  (ieinand   upon   the  inciiKs  ol  oijurs 
by  increase  of  price  is  exactly  connlerl.alanred  l,y  an  increased 
vvai^rc  ,„■  pnrchasin{,r  power  on  tiic  pari  of  laborers.      I  fence  an 
increase  of  wa-.  s.  by  il,c  nutliod  supposed,  is  not  a  detriment 
to  other  i.-iboiers.nor  is  it  inimical  to  national  accunmlafion,  if 
secured  at  the  expense  of  employers,  for  by  as  much  as  capi- 
talists have  less  inducement,  laborers  have  ^neater  power  to 
save. 


M' 


<:/  \'A/ 1.\   HI,;/'   ////  f>AV/;\ 


\.\.U 


^o   l,\i    llic  woiK  ol    HiriitiUio  seems  to  lie   |MiieI\-  ii(|;ili\c, 
but    t,\Keii    in    eonnettion  with    his   |><'mIioii    in    Kr.inl   to  the 
siMiHc  ol    w.tjM's,  both  nhiiii.\l<"  .ind  proxini.ite,  it  r.  <  nouj-h  to 
show  the  tien<l  oi  his  thinKini',.      Mis  i(l«\\s  .(s  to  tlu-  soniee  ol 
w  .UMs  is  ni.ul<'  elcu  in  the  ,u  tu  le  in  the  j.ihihiM  hri ,  .ind  in  some 
«il  his  \,\[c\   works.'       rii(>  e.ipitalist  sec  nies  eontiol  ol  I.ihnreis' 
|MO«hiets    In"  siippoilni!;   I.ihou-i  s  out  ol    hisiMpiLil       In  w  h;il 
e\-ei    loiiu  it    in.iN'  «  onie,  tluic  is  the    |iiiiposc  .niti    evpeil.ition 
th,\t  th<'  x.iluewill  ,\11  K-tmn  to  the  ( .ipit.ihsl  out  ol  ihe  iiu  nine 
ol   the  e(Misuineis  ol  hi,  piothut       Siiut"  what  lonsiinx  is  oiler 
is    no   settleti   .\nioiint.  the  waj'es  liiiul    theoi\   <i\eiIooKetl   the 
"  possil>iht\-  ol    rollini;   oil    upon   i  onsnniei';  the   hipjiei  WiijMs 
ilein.ui(U>l  In' eo;»litions ;  ii  oveih'oKs  tholaet  that  an  employer 
will   al\\a\s  he  iea(l\   to  e\penil   more   eapit.tl  in  the   payment 
ol   waives  as   s»vm   as  the  lonsruners  leplaee  lor  him  tin*  sum 
expended   thereon,  and   that    in   sm  h   a   eas(>  it  will  always  he 
possible  1(11  him,  it  he  himsell  has  no  moie  than  a  eertain  c  ipi 
tal,  ti>  ]Moeui(>  capital  by  boiiowin;^  abt«Md."' 

\\"("  s(>e  how  elosely  he-  loll(n\  s  lleimaim  in  admitliiif;  tin 
<Mitiepi(-neur's  possessions  as  tlu-  imme<liate  soniee  ol  \\ai;es, 
but  deinini;  that  the\- p(M  r«iim  thtMmporlant  lunelion  a-sj.-iicl 
In-  the  waives  lund  theorists.  The  capital  ol  t:ie  (  niployer  is 
the  scniree  of  waj^es  in  the  first  instanee,  but  the  emplo\(>r 
himsell  is  only  a  link  in  the  ehain,  and  that  a  very  dependent 
one;  loi  eonsunuMs  CiMitrol  the  situation.  If  the  kilter  slu.w 
willini;ness  to  consume  at  tcmuneiative  prices,  capital  ^-lu  ex- 
pand to  an  unlimited  amtMint  by  antic  ipation  under  our  c  ledit 
system.  This  \  iew  necessitates  the  surrendi'i-  of  the  itka  ol  a 
fixed  wai;e  fund.  The  effective  criticism  of  that  postulate  of 
b'nglish  political  econonn*  is  the  important  contribution  of 
l^rcntaiui  to  this  subject,  based  as  the  criticism  is  upon  Her- 
mann's jiositive  contributions.  Hermann's  criticism  consists 
larj^oly  in  an  interpretation  of  economic  organization,  as  rel.iled 


'  See  AV /.;//.'«  cf  Labor  to  Law,  p.  214. 


*Scc  l)cIow.  p.  ,57. 


I 


33.0 


///  /«•,!/  /  \\",    ■.rrVA.S  Vf'A'.V 


.V 


(o  (li(  l.iltoi  in-'  1 11.111,  w  I  IK  1 1  iii.itlc  IK  I  (  '•  .11  y  .1  (li(((  n  lit  \  i(  \v  <il 
tlir  ll.ililH'  <il  IIk"IiiikI"  lioiii  lli.il  <il  the  Im1];Ii,1i  '.(IkkiI, 
Hk  iil.iin)  U.I  .   iml    (iiii|,|ii    will)    till  ,,  Imt    |ini  .ii<  d   llir   »  nini)' 

into   111'.   tiU  II   (  ,lltl|i.        I  |i     'llnu  (  (I     lll,ll,,r.     |IkI;;((I     |p\      lilt      Viiy 

\viitiiii;s  til  llid'c  wlm  <  Ii,iiii|ikiiii'<|  the  dix  Iihk  iim  ,|  '.liiiii(;|y, 
it  must  siilfii  (liM  icilit 

l''iom  his  <  iili(  I  Mil  I.I  Kk.ikIu  .iihI  Mi1I,.>',  (.1  oilier.,  il  is 
elf. II  lll.lt  ni(-lit.iiii)  (l(i(  '.  Mill  Ik  liivr  ill  llir  Cixily  «>(  the  \v.n;«'S- 
riiiiil.  Mill  111'.  .ii(<)iint  1)1  till'  iii.iiinri  III  uliii  li  tlic  (.ipiLiI  in 
CMii|iIo)  Tis'  li.mil.,  uliiili  lie  ir!;.iiil;.  .1',  llic  iiiiiinili,itc  .'.miicc 
of  \v;ij;(  •',  t  .111  lir  (  Iiiiii|;ril  in  .iiiiniiiil,  ■  linws  lii.it  iIkic  arc 
(l(  flllllc     lilliit'.     tu     llir    Ihli  tn.llliill    (il     (,i|)it.il.       (  )||('     (  iililllioil 

tnclliod  vv.i',  sliowii  l»y  Mrcntiiiio  m  liis  ( iitit  ism  of  Mill.  An 
ciii|)l())i'r  !iii}^;lit  I  li.injM'  Iiis  iiiiml.  |{iit  vvliilc  this  mif^jlit  afd'tt 
to  some  cxlciil  llit-  fixil)'  ol  tlir  riiiiils  of  ail  individual  capitalist, 
it  hi'comcs  of  loss  import. iiuc  vvlicn  applied  to  capitalists  as  a 
class,  for  an  avi'ia{;c  <  liaii;;c  of  intentions  hy  a  iarjjc  miniher 
of  cm|)IoycTs  nii'dit  result  in  soiiielliiiifj  approacliii^j  a  con- 
stant, riie  s.iiiie  remark  holds  for  the  other  c.iusc  —  tlu;  use 
of  (  redit.  If  an  individual  capitalist  is  in  mind,  ihv.rr.  may  be 
some  truth  in  tlur  |)o.ssil)ility  ol  inereasin;;  vvaj;e-payin^  prnvcr 
by  credit,  hut  when  applied  to  all  lapitalisls  the  use  of  credit 
for  .such  purposes  h.is  dermitc  limits. 

In  general,  we  may  say  that  Ihcnt.ino'.s  criticism  of  the 
ICn^lish  economists  m.ilces  clear  his  view  tli.it  tlu;  source-  of 
waives  i.s  elastic,  and  tli.it  his  treatment  of  Thornton's  opinions 
shows  that  Ihentano  retjarded  as  possible  an  advance  of  waj^e.s 
to  workers  in  one  branch  of  industry,  wilh.out  necessity  of  loss 
to  workers  in  other  br.uiclies.  Yet  the  whole;  treatment  fail.s 
clearly  to  distin;;uisli  bc-tween  the  o[)erations  of  individual 
capitalists  and  the  operations  of  ca])italists  as  a  body. 

Roscher's  contribution  is  r.ither  insi^^Miificant.  As  usual 
with  the  Germans,  he  opens  the  disciissifjn  by  assi^Miin^  Uy 
supply  ami  dem.ind  the  highest  importance.  lOach  element  is 
coii.sidercd  by  it.self  in  the  discus.sion.     The  supply  of  labor  in 


i» 


t;rv.\fix  n  (iir  /vm'.'av/-,v 


.\\\ 


t\ 


«lrt('nnin«'il  In   \\\r  |>it'\.»iliii|'.   •  l.\titl,;til  i<l   lili"       Aiul  •.ini  >■  (lir 
sl.iiui.titl    I-   lU'ti'i  nniu-il    l>\'    l.thoii  i  s,  tlii'it  li>ii'    \\\r    Mipph    ol 
l,»l>«M   IS   »l<tiMmin«"il  l>\    I.«l>onMv       lliii';   imic   iiupoil.ml    l.n  l«> 
*>l  tlu^st'  whuh  (Irtoiinmr  \\.»}',rs  is  \imlii  the  ituilinl  d  w.ij'c 
icviMviMs       Kostl\»M  scrms  to  \\.\\c  imdiftoptl  ihi>  umI  mi'miIi 
« .iiu  »•  ot  tills  I, Hi  w  ithiMit  asMiMimi'.  ti'o  mill  li  impoi  t.iih  r  to  it 
It   IS  not  tiiu",  ot    (OUisr,  lh.it   pii'Milt    l.ihouis    li.i\f  loiilinl  ol 
|MOSint    sVippK  .        I  o  s.i\    tll.il     l.il'cui-.    ll.ixr   (OiiticI  el    l.ilnu 
suppU   t  ,in  onI\   uuMii  tli.it   )MrMnt    1,i1>im«i'-  i  .im  (onlii>l  Inline 
snppU        ilow    iinpoit.inl    tlir.    iii,i\    In-   ,is   ,i    Imm'.    lot    '.111111111; 

4ip011    l,ll>Oli-|s     llu-     li'-ponsllMJltN     lot      tllvll      I'WIl     I  Ollllltion,   til" 

pciuN  iipon  lii>\\  lliou>ii|;lily  \M'  hold  to  tlir  MiiuI.intN   ol  l.ihor 
.IS  .1  ••i>it  (i|   loipoi.ito  K'sppiisihilitN-  l>\  whuh  tlif  puMiil  imii 
fi.ition  is  luKi    u'spoiisihU-  IvM    thv    iIoin(',s  ol    the  p.ist    imiici.i 
tioiv      Ki'spiMisil>ilit\     IS    ol     two    kniils,    n.itiii.il    .md    iiiiM.il 
N.ltiit.il    irsponsihihtv    toi    p.ist    i-i  101  s,  citlici  ol   thciiisi  1\ c,  01 
ol   tluii    .uurstvMs,   l.ihouis  » .mnot    is»  .ipo.      Iht'   mms   ol   tlu> 
(.UhiMs  .lu"  \  isiti'd  upon  the  »hil(In'iv      Hut    the  iiioi.il  icspoii 
sihilitN    loi  the  ciiotsol   .1   totmci    tiniot.imiot    !>«>  .isiiilicd   to 
tho   iMt'scnt.      l^iit   thr  iMsr  iu.i\'  he  ilillru  iit    lu   icspr*  t  to  thr 
.uCiMint.ihility  ol  tlu"  pu'stiit  tor  the  liitiiic       it  is  icit.un  tli.it. 
j>h\  .siealK'   spiMlvinj;.  tlu'    supj>ly    ol    the    l.ihoimp,    popiil.itioii 
twiMit'-  viMis  honoo  will  di'piMiil  iipt>n  the  .ution  ol'  popiil.ition 
l\>i  the  iu\t  ten  Niwis.      lUit  tluMi*  is   nothing;  in  tlw   n.itine  ol 
thin};s  th.it   eouKl   iiulie.ito  wh.it   l.iln>iinj;  popni.ition  is  luics 
s.u\    twcnt\-  yr.us   hnue.      So  th.it   picscnt   inoiv.iso   is  b.ised 
upon    present    eoiuiitiiMis,  .iiul   the  liituio    niiist    t.ike   iMie    ol 
itselt;   just  .is  j\ist  evMulitiiMis  tletetmined  p.ist  iiUTC.ise,  and  the 
jii<  >ent   nnist  de.il   .is  best  it  cm  with   iuimiIhms  siuh  .is  they 
air.     Althoiii;h  Riisoher  does  lu^t  enter  .it  all  upon  tliis  liiu"  o( 
ic.isoniiii;.  ho  .sees  enoui^h   to  admit   th.it   l.ihor's  eiMitio!  oxer 
its  own  siippU-  h.is  this  limit. ition  :  th.it  the  l.ihorini;  cl.iss  .is  .1 
boilv  can  lienotit  In'  it  only  .liter  lonij  periods  of  time,  and  that 
for  the  moment  \hc  control  is  ol  slij;ht  advant.i^e,  hee.uise  tlu' 
*vholo  present  supply  must  be  carried  to  market  tor  siipjioit. 


r 

i 


i 


f 


.rv 


///  AM/  /  \  \  ".    \f(  (7  ss.'AVs 


W> 


l)<'iu.in<l,  .It  ri»ii|in;;  to  Ktr.thci,  ilcpcml'.  npiHi  the  v.ilii'-  in 
use  (i|  l.ilioi  .111(1  pill  I  li.i'.fi '.'  i.ip.iiily  to  p.iy.  While  the 
st.UJil.iid  ol  lilc  liM",  iinninniMt  \v,i;;ts,  v.iliic  in  ir.c  ilclrimmrs 
ni.ismnim  \v,i;m"..  I'mln  \.iliir  in  ir.r  lie  im  nl\-  .ippinvt";  v. 
1  hiincirs  pmnt  tli.it  .nlilituMi.il  piiMliut  in  .iii\-  Ih.iikIi  oI  in- 
(In.tn-.  tine  to  tin-  l.il)i>i  ol  ilic  l.r.l  woiKni.in  i  iiipl<i)('(l,  li.is  ,\ 
innlititlinp,  iiilliunt  t"  mi  llic  i.ilc  ol  \v,i;;c'.  lie  i  onnct  ts 
iMp.ii  ity  to  p.iy  Ml  ,1  v.ij;iic  U.I)'  Willi  n.ilioii.il  nil  onic,  In  this 
it  I'.  I'.i'.y  to  ti.it  »•  the  iiilhiciii  «•  ol  llcnii.inn.  Ihit  the  points, 
vvlun  not  li.i|;ni(  nt.n  \',  .lu  <  onliiscd.  Ilriin.inii  \-<  i!)  loj- 
lowrd  III  the  opinion  tii.it  tin-  i  .ipil.il  ol  (he  ciiiploNci  i-.  iioi  tlir 
soiiii  (•  ol  w.ijM  '.,  lint  .11  I',  .r.  .1  '.Ol  I  ol  i("  CI  \ on  loi  tin-  p.iyniriil 
«>l  w.iiMS.  |)(iii.intl  lor  l.ilioi  thus  iioi  (Icpciid  upon  the  si/c  o( 
the  ii.it  ion, il  ( .ipil.il.  Iliis  vi(  \v  is  Mippoi  ted  hy  <  ,illin|;  pticiition 
to  the  i'i!(  (  I  ol  tli(>  dilli'ictU  iisis  ol  ( .ipit.il  upon  thr  dcni.iiid  lot 
l.'ho:.  "  I'.vii)' li.insloinialion  ol' i  in  iij.itinj;  into  lixcd  i  ;ipit;il 
(liniinislu-s  the  demand  loi  olliei  l.ilioi."  "()nl)'  th.it  p.ut  «*( 
iiieiilatiii};  e.ipital  «  an  .illeit  wajus  uIikIi  is  inleiid<(l.  diietlly 
or  indiict  tly,  lor  the  piiiihase  ollahoi.'"  lie  likewise  follows 
Jlerni.inn  in  the  view  tli.il  the  hipjiest  wajMs  are  paid  to  ihosc 
who  .ire  employed  on  the  List  ?.t.i};es  ol  the  prodiK  tive  proeesscs. 

This  is  enoiijdi  to  sjiow  how  lillle  ol  oii[;in,ility  is  to  he  foniul 
in  this  part  of  Kosthei's  woik.  Al  the  saiii'' tiiiw  it  is  (•noii^di 
to  indie. ite  his  proper  historii  al  piaicitii  the  (piestion  ol  wap,es. 
The  method  is  thai  ol  l\au  and  llerm.inn,  while  the  ideas  are 
mostly  those  of  the  latter.  While  the  trealmenl  is  much 
weaker  than  th.it  of  the  one  from  whom  he  ( hi(  (ly  dr.iws  his 
material,  the  inchision  of  von  '1  liiiiun's  iindevelopt d  doctrine 
ol  the  influence  of  mat}.nii;il  Laborers  on  w.ij^es,  having'  nf) 
oi_L;anic  connection  with  other  i)aits  of  Koscher's  wr)rlc. 
implies,  in  adilition,  ;i  c.ireles.s  attitude  of  mind  on  the  wholt? 
qiu'stion. 

Mithoff'  seems  to  li.ivc  .idopted  Roschcr's  treatment  a.s  an 

'  ivosciicr,  /'(>/.  /lon.,  V.  2,  p.  55. 

•  Sec  Sclii)iil)cr{;'s  Hatiiibuih  dtr  /'olitisi/ifii  Ockoitoniie. 


40 


GERMAX  ir,t (.;/■:  /•///■oaves 


[336 


outline  for  liis  own  discussion.  The  standard  of  life,  the  ele- 
ments of  which  he  states  in  lietail,  here  also  determines  mini- 
mum wai];es  and  is  treatetl  under  supply,  while  the  usefulness 
of  labor  and  money  demanil  (ZahliMii;sfahi<;keit)  detertuine 
maximum  \vai;es.  The  lari^er  part  of  his  treatment  comes 
uniler  ability  to  pay,  and  is  hence  an  attempt  to  give  a  more 
precise  determination  to  tlie  waqes-fund.  It  must  be  confessed 
that  the  exposition  is  somewhat  hackneyed.  The  capital  of 
the  employer  and  that  of  others  over  which  he  has  control  by 
means  of  credit  is  a  reservoir  for  the  payment  of  wages.  What 
flows  out  of  the  reservoir  in  the  form  of  wages  is  restored  by 
consumers  of  the  goods  produced  by  labor's  help.  Hence 
consumers  are  the  buyers  of  labor,  and  their  income,  or  that 
portion  uhich  is  paid  to  labor,  is  the  true  source  of  wages. 
This  is,  however,  not  a  fixed  amount  in  the  sense  that  it  re- 
mains fixed  during  a  productive  period  as  it  was  at  the  begin- 
ning. At  any  moment  it  is  a  fixed,  but  nt)t  a  foreordained 
amount.  If  at  any  moment  we  divide  thij-  amount  by  the 
number  of  laborers,  the  quotient  is  the  average  wage.  How- 
ever, Mithoff  shows  his  practical  turn  of  mind  and  his  agree- 
ment with  Brcntano  by  asking  what  purpose  such  a  procedure 
would  answer.  The  amount  of  capital,  however,  applied  to 
the  purchase  of  labor  is  unknown.  If  it  is  a  certain  sum  to-day, 
by  a  change  of  rate  it  is  a  different  sum  to-morrow.  A  change 
of  rate  is  possible  by  a  transference  of  part  of  the  profits  to 
wages,  or  by  drawing  more  heavily  upon  consumers.  "  If 
neither  of  these  assumptions  can  be  made,  then  the  under- 
takers will  not  ap[)ly  a  greater  amouiit  of  capital  to  the  pur- 
chase of  labor.  In  this  case,  certainly,  the  average  rate  of 
wages  remains  dependent  upon  the  capital  which  the  under- 
takers determine  shall  be  applied  to  the  purchase  of  labor," 
However,  the  amount  is  not  made  unchangeable  during  the 
production  period.  How  much  of  the  national  income  is  ap- 
plied to  payment  of  wages  depends  upon  two  factors  :  the  first  is 
direction  of  consumption ;  the  second  is  the  character  of  produc- 


.  •■■    ♦ 


Ml. 


i 


}  I 


,,7-1  ///■:a\)/.ixa".s  slcc/-:ssoa'S  41 

tivc  industries.  "  If  consumption  seeks  pi-cponcIcratin{:;!y  for 
such  floods  as  require  for  their  production  much  human  labor, 
a  'greater  part  of  the  national  income  is  retiuired  for  the  pur- 
chase of  labor  than  would  be  reciuired  if  such  ^^oods  were  ccMi- 
sumed  whicli  required  less  labor  and  more  capital  and  a 
lart^er  drau<;ht  upon  nature's  powers."  If  we  suppose  an  in- 
crease of  total  capital  the  evolution  of  technical  branches  of 
production  will  promote  a  more  univcr.sal  application  of  capital 
and  a  diminished  use  of  human  labor. 

Wc  perceive  that  Mithoff's  views  are  for  the  mo.st  part  such 
as  we  find  in  the  works  of  his  predeces.sors.  Wc  have  supply 
and  demand  a ;  the  great  law,  sujiply  as  connected  with  cost  of 
labor,  demand  for  labor  as  connected  with  its  utility,  and 
la.stly  consumers'  income  as  the  true  source  of  wages,  which  is 
but  a  repetition  of  Hermann's  view.  How  much  consumers 
contribute  to  wages  depends,  he  says,  upon  the  direction  of 
consumption  and  the  character  of  productive  industries.  If 
consumpiion  takes  the  direction  of  demanding  goods  chiefly 
made  by  labor,  wages  tend  upward  ;  or,  if  the  state  of  the  arts 
is  such  that  what  is  demanded  is  made  largely  by  machinery, 
human  labor  is  displaced  and  wages  tend  downward.  The 
conmients  of  Professor  Taussig'  on  this  point  are  so  admirable 
that  I  shall  be  pardoned  for  quoting  him.  After  pointing  out 
that  this  reasoning  as  to  the  direction  of  consumption  is 
derived  apparently  from  Roschcr,  who  states  that  the  demand 
for  unskilled  labor  is  much  affected  by  the  direction  which  con- 
sumption takes,  being  greater  if  the  luxury  of  the  rich  takes  the 
form  of  hiring  many  dependents,  and  less  if  expenditure 
takes  modern  form,  he  continues:  *  *  *  "  The  whole  consid- 
eration of  the  direction  of  consumption  as  affecting  wages,  the 
discu.ssion  of  demand  for  hand-made  goods  or  machine-made 
goods  *  *  all  goes  back  to  consumers'  demand  or  income  as 
th^  source  of  wages.     It  can  really  bear,  therefore,  only  on  the 


•  Quarterly  Journal  of  Economics,  v.  9,  p.  19. 


:^iir 


.J! 


(,•/•  .V  1/  /.\'    ///(,/■•     /•///•('/,•//■  .V 


\^^^ 


i\c\u,\Ui\  lor  onr  soi(  ol  I.ilxir  ;«s  i  (»nip.U(Ml  with  .hihIIkm.  ■•■'♦■♦ 
Vhr  loiin  wliii  I»  il  lakrs  with  Milliod.  atitl  app.iiciilly  willi 
Kosilii'i,  mcilooks  (he  simple  f.it  (  III, it  iu.k  liiiics  .\ir  in;i(lr 
In'  l.ibor.  .ind  (li,\l  .i  (Icin.iiitl  Ici  m.u  Itmc  niiulc  <m)ihIs  .illtc  Is, 
nol  ihr  tdi.il  ilctu.inil  lor  j.iltot,  Iml  the  iliicrtinn  ol  ilctii.inil 
{''.\\)  |o\v,\i(Is  l.ilioirts  who  in.iki"  .iiid  IcntI  ".lioc  in.uliinci)' 
lallici  Ih.in  IowmkI;  oM  l.ishjoncd  t  ohhlcrs," 

1  luMc  IS  .1  iM)0(l  dcil  in  M,in};oltll  lo  KMninil  one  ol  Senior, 
I'oth  in  •■.pint  .nil]  in  licitnu-nl  ol  llir  siiliiccl.  Stnioi,  liow 
rvci,  did  nol  cniploN-  mu  h  (("nninoloj'\-  ,is  lo  ohsi me  i.illicr 
lli.ni  illiiniin,it<^  his  tr\|.  nor  did  he  (  iiiiiIxm  llu"  iKMlinnil  willi 
Muh  b.iiun  .\n,il\sis.  l\I,in(",ohIt's  Ir.nhinjjs  iUMct"  ioi  liic 
most  p. lit  with  conlcnipor.uA-  I'lijdisii  poiilM-.iJ  <■( diioiny. 
This  is  sciii  most  (  KmiIv,  peril. ips,  in  his  ticitmcnt  ol  the 
w,i|;rs  Innd.  I  "ho  snpplv  ol  (ho  nii  ,ins  ol  sup|)orl  ol  l.ihor  is 
said  t(»  vdiistitule  the  demand  !«>!  lalmi.  Ihis  sii|)ply  makes 
wi^  the  iMwiter  part  ol  enenlatinj;  eapital.  I'or  (heoK  tuai 
purposes.  sa\s  MaiU'.ohlt.  we  ma\"  tre.it  eirenlatin;^;  c.ipit.il  .iiid 
me.ms  ol  snppoit  ol  l.ihor  as  idrntual,  and  s.i\'  that  wa^ics  aic 
tIet<Miuinod  l>\-  tlie  lelation  «>1  cin  nlalinj;  capital  to  labor 
supply.  Hut  this  (.onu's  daniuMously  near  saying  lh.it  w.i<;es 
are  determined  hy  the  relation  ol  labor  suppl)'  lo  w.i|;cs.  This 
dcel.uatitMi  so  l.ieks  in  seientilic  precision  th.it  it  may  not  be 
impioper  lor  I'lolessor  r.uissi}^;  lo  s.iy  that  I\Ianp,oldt  "  jMves 
the  subject  ,\  wide  berth,"  llis  IraiMiientat \'  treatmt-nt  m.iy 
l)e  exemplilieil  b\'  the  lad  th.U,  like  l\«»scher.  he  merel\'  ap- 
proves owe  ol  von  Tluinen's  nmst  impoitaiil  coins,  but  m.ikes 
no  use  ol"  it  in  luither  discussion,  lie  .s'j  se  demand  Ibr 
laboi  proceeiis  liom  emplo\(Ms,  .\iul  ^:■^\^  continue  only  so  loiij; 
as  the  service  ol  I.iIum-  surpasses  in  \.ihie  that  which  the  em- 
ployer p.iys  in  the  {o\n\  t^f  \va};es.  Since  employer.';  .ijiply 
labor  to  the  most  iirotluctive  p.irts  ol"  their  business,  atul 
only  have  lecouise  tc»  less  piiuluclive  paits  as  moie  labor 
is  empli^wHl.  it  is  possible  to  s.iy  th.it  the  wa^es  which 
si'cuies  equilibrium  between  supply  ami  ilemaiul  is  of  like  im- 


1  . 


3391 


///'  /.M/./A  A".V  .'.trC/'SSOA'S 


43 


p(»il;iii(  (•   with    the   aiiliripalcd    pure    ictiiin   of  llic   lat)<>r   last 
a|tplif<l.' 

I  he  lirafincnt  ofotir  siilijcc  (  hy  !'liilipp(.vi(  li '  i>;  of  infcicst 
li((  .ui'.c  he  ciidfavois  to  ywr  a  systematic  a((oiiiit  of  I'olilical 
l^(<inoiiiy  as  it  now  stands.  lie  dors  not  n  present  any 
nononiic  s(  liool,  hnt  Ines  to  idain  the  lust  (roin  all  \vi  iters, 
and  tlms  exl)il)i|  a  projMcssivc  seienrc.  His  inetluid  is  tlior- 
ou;dd>'  ( ieiniarj,  lollowiii};  as  lie  docs  Kan  and  Ilertnann  in 
treatin;;  \\a<;es  as  only  a  part  subject,  »ind(r  pi  i(  c  of  (r»niniodi- 
lies.  If  f.iitljfiilly  followed,  tliis  method  insniestiie  iiuliision 
in  the  «hs(  le-sion  of  all  the  impoitant  eotimsert  iai  infliK  iiees 
upon  wafjes.  To  avoid  error,  however,  it  is  necessary  to  nf)ticc 
in  what  respects  hibor  differs  from  commodities.  I'hilippovich 
<'sca|)es  this  error  only  in  part,  lie  merely  mentions  the 
laliorer's  relatifjns  to  the  thinj;  whic  h  the  laborer  sells.  Since 
the  lal)e)rer  cannot  separate  himself  frenn  his  laljor-power,  and 
the  fiilfillmff  e)f  the  lalieir  contract  involves  the  use  of  the  tnan, 
the  waf;e  epiestion  involves  more  f)r  less  the  physical,  moral, 
spiritual  and  se)cial  wetlfaie-  of  waj^^e-earners.  These:  non- 
material  elements  of  the  problem  affect  the  i)ractical  wotkinj^ 
out  f)f  the  forces  e)f  supply  and  demand.  In  critical  periexis 
of  the  relation  of  employers  anei  emplf)yed,  the  local  bf)nds  of 
•workmen  preve-ntin'^j  nroveme-nt,  as  well  as  lack  of  accumulated 
means  oi  support,  eipe-rati;  aj^ainst  them.  The  ease  with  which 
employers  organize,  anel  their  command  of  the  suj)j)lies  of  life, 
}.n've  iheni  the  advantafje  in  the  stru{:^^le,  and  as  a  con.sc- 
<pience  laborers  are  apt  to  suffer  in  their  rate  of  waj^jcs. 

These  are  obvious  considerations,  and  were  well  exi)resscd 
lonjj  ago  by  Adam  Smith.  The  peculiar  bearing  which  they 
ought  to  have  upon  the  method  employed  by  nearly  all  the 
economists  of  the  grouj)  now  under  consideration,  will  be 
noticed  when  we  have  finished  the  ex[)osition  of  Phili[)povich'.s 


'  (jrutii/riss  lirr  VolHuirthschaftilehre,  p.  158. 
'  GrunJriss  der  Pulitischeti  Oekotiomie. 


fe,,    ill  i 

I.  .    f  11     I      u 


'.';», 


44 


GERMAN  WAGE   THEORIES 


[340 


\l 


rt'  '(?l 


%,\    ^'■ 


'III' 


views.  Philippovich  follows  Hermann  in  the  manner  in  which 
he  examines  the  forces  of  supply  and  demand.  On  the  side  of 
demand  we  have  (l)  the  number  of  undertakers;  (2)  the 
amount  of  service  desired  by  them  ;  (3)  their  valuation  of  the 
service;  (4)  their  ability  to  pay.  On  the  side  of  supply  we 
have  (5)  the  number  of  those  desiring  work ;  (6)  amount  of 
service  demanded  of  workers;  (7)  laborers'  own  valuation  of 
labor  power  ;  (8)  value  of  money  paid  for  labor. 

I.  The  influence  of  the  number  of  employers,  says  our 
author,  lies  in  competition.  The  more  employers  there  arc, 
the  more  will  wages  have  a  tendency  to  rise.  From  this 
point  of  view  it  would  seem  that  laborers'  interests  are 
inimical  to  the  concentration  of  industry.  If  this  be  true, 
laborers  have  a  discouraging  prospect  ahead.  But  our  author 
does  not  hint  that  laborers  have  any  control  in  the  matter. 
Whether  a  country  shall  have  a  large  or  small  number  of 
employers  depen's  upon  many  conditions,  he  says,  among 
which  are  the  degree  of  culture,  distribution  of  wealth,  the  or- 
ganization of  credit,  and  the  manifoldneso  of  the  directions  of 
production.     None  of  these  is  under  the  control  of  laborers. 

II.  The  amount  of  labor  which  is  sought  for  in  the  general 
labor  market  is  determined  by  the  amount  of  land  and  capital 
which  the  owners  employ  in  productive  industry.  The 
strength  of  this  labor  demand  is  much  affected  by  the  distribu- 
tion of  wealth  and  the  productivity  of  wealth.  Individuals 
who  own  large  amounts  of  wealth  apply  a  larger  proportion  to 
direct  satisfactions  than  those  who  have  small  possessions, 
since  the  latter  are  more  strongly  moved  to  the  increase  of 
income.  Concentration  of  wealth,  then,  in  the  hands  of  single 
individuals  is  a  hindrance  to  the  demand  for  labor.  If  wealth 
has  become  less  productive,  there  may  be  increased  activity  in 
productive  enterprises,  since  decrease  of  income  leads  many 
individuals  and  families  to  increased  effort  to  bring  incomes  up 
to  a  former  standard.  Since  the  opposite  is  likewise  true  in 
the  case  of  other  individuals  and  families,  the  demand  for  labor 
is  affected  by  fluctuations  of  income  from  investment. 


;>»■     !) 


[340 


24 1  ]  I/KRAr.iA'A"S  SUCCESSORS  45 

III.  Labor  is  valued  by  undertakers,  not  in  itself,  but  in  its 
products.  The  price  of  products,  however,  gives  us  slight 
indications  of  what  wages  arc  or  can  be,  since  price  must  cover 
all  costs  of  production,  of  which  wages  may  be  but  a  small 
part.  The  highest  amount  wliich  can  be  paid  will  be  much 
affected  by  the  price  of  products  in  connection  with  the  extent 
of  the  market,  the  technical  skill  of  workmen,  and  the  relation 
of  efficiency  to  wages.  Philippovich  lays  emphasis  upon 
laborers'  responsibility.  Under  normal  circunistances,  the 
most  important  element  operating  in  the  laborers'  favor  is  the 
personal  element.  It  is  only  by  greater  skill,  greater  industry, 
and  greater  care  that  their  condition  is  elevated. 

IV.  Under  "Ability  to  pay,"  little  is  said  by  this  author. 
While  accepting  Hermann's  view  that  undertakers  stand  be- 
tween laborers  and  consumers  of  laborers'  products,  and  that 
their  ability  to  pay  is  affected  by  what  consumers  pay,  he  yet 
points  out  that  undertakers  may  replenish  their  fund  of  dispos- 
al)Ie  wage  capital  by  mciius  of  credit.  But  how  this  fact  may 
affect  wages  is  not  made  clear.  This  is  a  point  which  has 
been  mentioned  by  both  Brentano  and  Philippovich,  but  has 
been  left  undeveloped  by  both. 

V.  To  understand  adequately  how  laborers  compete  with 
each  other  we  must  perceive  that  industry  is  carried  on  in 
branches  and  laborers  are  divided  into  groups,  separated  more 
or  less  completely  by  differences  in  skill,  special  aptitude  and 
training.  However,  there  are  in  all  branches  of  industry  oc- 
cupations which  require  only  ordinary  skill  or  intelligence  and 
hence  can  be  filled  by  the  common  laborers  of  all  branches. 
Here  exists  almost  complete  competition  and  the  lowest  wages 
prevail.  As  we  ascend  in  the  scale  of  skilled  and  special  em- 
ployments up  to  the  liberal  professions,  we  find  more  and 
more  important  the  group  formations.  Even  in  groups  there 
are  forces  at  work  which  tend  to  break  down  the  barriers  to 
competition.  One  such  force  is  the  existence  in  modern  times  of 
extended  enforced  idleness.     Such  idleness,  not  accidental  but 


46 


(//•AM,'  /.\'    /(    /..•/     /•///  <'A'//'.s 


l> 


l.ii  lH'U'  the  n'snlt  ol  the  nn'.ti'.\tliiu".>.  ol  iiuliisli  i.d  cvoliititMi,  ii\i 
pels  twcn  til  sci'k  lU'W  ciiipIoN  nunl'-.  lliir.  1)1  f.ilviii;;  tlnwn  luiiiui 
jMiMip  ,11  I  ■UUM'UU'MtS.     rilliC  IS  .ilw  .l\  s  ,1  ii-.ulju'.diu  lit  ol  riiii>lt>v- 
luciit  ,11  til  ,111  extent  Km  1  |Hi  unl  ol  i  iiloiicii  nll(  ne.s       I  'ikIci  »  i  i 
t.im  eNei'ption.il  i  oiulithMis  tlu  ic  .iir  ii,itiii,il  limit, itioir.  to  i  nm 
petiluMV      When  iitUHi  ii|iieil    l.iiul    is  plciitilul  »  oiiiiu  titioii  wih 
ee.ise  .it  the  point  when*  \\.ii;es  smlv  to  the  level  ol   uli.it  l,ilioi 
e,\n   ni,ike   on  siu  h  l.iiul.      Hnl   this  is  not    the  l,i\v  iiiuK  i  ouh 
H.\i  \'  viu  iinist.uu'es.       The    i>peMinp,s   to    l.ilmi    without    i.ipil.il 
,\\c  sm.ill    in  inimhei.      .As  .»  tnle  hihoi    power  without   » .ipit,il 
li.\s  no  \,ihie  to  its  owner. 

\  I.  In  tl\i'  . I  mount  ot  l.ihoi  ollei  ini;  sei\  iec  onr  ;uithoi  docs 
tiot  nuMn  th("  numluM  ot  piisons  scckinp^  woik.  I  li.it  is 
nie,\siiu\l  hv  tlie  kUttu  power  .iiul  skill  ol  kihoieis  .ind  the 
miiuher  ol  honis  vliiiiiu',  whuh  d.ul\-  its  kihor  power  «  ,1M  l>e 
.utive  The  (>nl\-  \yo\i\{  UKule  uniler  this  he.ul  lu)«iiul  the  loic 
i^oini;  iletinitioM  is  thai  lel.itiiu;  {o  the  eonespoiuK  iiee  lielwecu 
time  aiul  seiviee.  Up  to  a  eejt.\in  point  as  liio  li«>iiisol  {hr 
woikini;  il.iy  ate  shoiteiunl  the  iiu.iht)-  ol  the  serviee  per  hoiit 
increases.  No  attempt  is  made  to  ileteiniine  this  point,  luit  it 
is  lMoiiL;ht  out  th,U  it  this  point  ol  m.iNinuim  sei\iee  is  p.isscd 
in  tlie  din'etion  otsluMte»-  hours,  the  elTeel  is  the  same  .is  il  the 
number  ot'  workers  were  deereased. 

\'ll.  The  lahoiei's  valu.ition  ol"  his  labor  power  may  be 
atVeeled  b)'  two  eireumstaiues.  Under  the  exee|)tional  con- 
ditions of  the  exislcneo  t>l  laij^e  cjuantitie.s  of  fertile  unoeeupied 
land  aeees.>^ible  to  laborers,  waives  cannt>t  sink  lielow  the  in- 
come ol)t.iinable  by  the  laborer  in  iiuU-pendent  undertakiiu;. 
lUit  under  ordinary  conditions  the  oppoilunitics  lor  indepiiul- 
cnt  unileitakiu!.;  without  lari;o  capital  arc  in.sii;nirieant,  so  that 
from  this  st.mdpoint  l.ibor  power  lias  no  value  to  the  owner. 
A  basi.s  for  its  valuation  is  found  by  reco^nizinj;  the  personality 
of  the  laborer.  This  appears  by  reason  of  the  cost  value  of 
labor  and  the  standard  o(  life.  The  cost  of  labor  is  not  so 
simple  as  niii;ht  at  fust  appear.     Mven  a  narrow  view  must 


I  ,M  / 


•^.j  ^  I  ///AM/.^^  A'.'.   .vTf  (7  .V,V()/.',V  jy 

inrliidc  in  ;i(!(lilii)M  lo  '.uiiikhI  (liiiiii;'.  llic  lime  nl  woiK,  costs 
(il  liim!;in!;  up  .inti  (I(\(l(i|iin(  ill  ol  tin-  l.ilxdcr.  mi|i|miiI  (liiiiii!; 
tlic  |m'||(mI  (i|  nlil  ,i|M',  .Mill  .1  K'.civc  ,1'.  .1  |ii  civi'.ii  111  .i|;,iiir,t 
.•.il  loic'.'.  .111(1  ntlici  <  ,iii'(".  1)1  Id',',  III  iiiipli  i\iiiriit.  j'nl  tlir 
l.il)i)i(-r  ;r.  .1  linin.iii  jki 'un.ilih-  r,  iiiuir  tli.iii  .i;i  iiiilivnlii.il. 
lie  is  .list)  (lie  l.ilhci  nl  .i  l.iiiiilv  ;  .mil  im  I. in  in>!"ni(  nt  nl  liir 
V.ilili'  ol  l.ilioi  I  ,111  i;.;noi(-  til, it  l.ut.  Ill, it  it  I  .  so  ollrti  i>;iioiril 
is.iiioimlcd  lor  Iiy  our  .inllioi  |)\'  .i  Klrniiir  to  llir  stiolij; 
c°oiii|)(-titioii  ol  l,ihoi,anil  tlic  .iiliiiitt.iiii  r  o|  uomrii  to  turn's 
cniploxniciils.  'IIic  i|iiistioii  ol  <  osis  i,  iiiik  Ii  inllin  ih  cil, 
\vli(-tli(  I  .IS  .111  iiHliviilii.il  ol  tlic  Ik. Ill  ol  .i  l.iinily,  liy  llir 
.st.iiuhiil  ol  lilc,  \vlii(  Il  1.  (1(  rnicil  .is  llic  (•x|)(ns<'  wlm  li  one  is 
iiuiiui'il  on  the  .i\  (  i.i};c  to  im  in  loi  llic  s.it  isl.u  I  ion  olWiiiils, 
in  .ic(  Old, line  with  ilic  li.iliit  .ind  <  iistoiii  ol  tin-  iMoiip  to  vvliii  li 
one  is  .itt.ulicd  l»y  Ins  c.illini;  ;  oi  siioi  ||y,  siippoi  (  conforiiiiiMc 
to  one's  i.ink.  1  liis  diireis  so  iiiik  Ii  .k coidjii};  lo  pco|ilcs, 
times,  .iiid  pi. ices,  iJi.it  it  is  impossihlc  lo  iciIikc  llic  st.ind.iid 
of  lile  to  ail)'  l.iw.  In  ('.eiieial  i|  m.iy  \,c  '..lid  iJi.it  much 
depends  upon  the  position  atioKhd  to  the  l.ihorin};  class  in 
.society  and  political  lile.  The  dirfeient  amount  ofconlatl  with 
other  social  strata  and  the  me.iiis  o(  i  iiltiire  hei  ome  of  prime 
iinporlance.  Of  course,  the  standard  of  lile  is  a  powerful 
foiC(;  anion}';  all  <  l.isses  of  .society;  hut  tli.it  ol  the  lahoiinij 
cl.iss  h.is  a  speci.il  inleresl  to  student  ;  ol  .society,  hec.iiise  the 
intcf^rit)'  ol  llu-  st.indard  has  ;i  iiiok;  or  less  pre(  arioiis  snppoit. 
in  their  case,  and  a  failure  to  maintain  it  may  mean  a  re.il 
dc^Madation.  It  is  hecause  lahorers  ;ire  affectiid  in  their  social 
position  and  their  respet  lability  that  such  fierce  opposition  is 
made  to  vvaj^c  reductions.  It  i.s  only  hy  raisinj;  the  st.indard 
of  life  that  wc  can  have  a  permanent  rise  of  vva{.jcs. 

VIII.  Waf^cs  may  he  said  lo  he  affected  by  money  in  that 
wnc^es  fall  if  money  increases  in  value,  and  vice  versa.  The 
cause  is  a  double  one.  If  money  becomes  de.irer,  other  things, 
including'  labor,  become  cheaper;  but  in  the  f, ice  of  a  fallinjj 
market,  production  tends  to  diminisii,  and  tiius  the  demand  for 


•/.  ,V  V  (  \     M    (,.7-    77r7i\V;/-  V 


1 1 


m 


^  \ 


1,\1^M    i;  li'-'iciliil         It    w  ill   Ix    ii.>(  ii  .  .1  ll\  >M  !\r:  .11  (Minu  n(  (I'l   (he 
luo-;!  nil  1   .\pplit  -  1>^  iu><ni  \    \\  \<;t  ■■.  i^\\\\  ,    n\il,  ini Ic  i  i|,  l lie  \\i   it 
nit  Ml    llni'^    i\\    I  iMii"  mplid  ■.    iii<    Ji  d  i  nim.il  i">n    "I    •  iMiniioilit  \ 

1  111-  <  nl  M  I    It  I   itiu.nl  l'\    riiili|<pi>\  11  li  in,i\   In-  •inimi  n  i   i  il  :\'j 
fi>ll.M\  ■      \\  ,\i;r^  .\\i    ill  1.  I  mini  (1  Im    llir  i  untlnni  <1    n  (mn  •'(  llir 
1i''lli>\\  nil'     <iM  I  I  ';       I        I  111     I  I iinpi  I  it  II Ml    (in     l.ilioi    i;  jm  i  ;il  i  i ,  1 1ir 
l.iit'ii    till'    iiiiinl>i  I     i>(    1  iniili'V  I  I  ;        '     I  In     Ji  ninml    Im    I.iImm 
ili-piiiil;    p.inU    npi'ii    till     .miiMinl   nl    l.uiil    .iinl    i.i|iil,il    nliiili 
till    i>\\  111  I '.  1  iii|>lo\    111  |M  oilin  li\  I    inilin;!!  \         I  lii;  rniplin  iin  nt 
i--  (,i\  PI  rJln    Mn.ill   i>v\  III  I  ,       ;     1    (In  n    i';   l.n  jn  U    \  .iltn  il  :ii  ■  ■  n  il 
111'',  to  till'  1  (III  II  111  \    .niil     'K  ill  ol    w  iM  K  nil  n        |     I  In-  |<in\  ■  i    In 
rinpli>\    l,il^.M    !■.  .lid  I  (ill    Ii\    (111    ill  I'll  I     111    nliiili    niiili  i  (;(Kt  i  ■: 
«  .111    n-'-(i>M'  1  .ipil  il    I  i(  In  I     (i  inn    i  innnnii  i ';    nn  nnn  ";  m   li\    (In 
Um'    o(    iiiilit         I,     1    iIiiMii'i     .111-    Iniiilril     in    (liiii     I  ninprl  iliKii 
;\i;.un'-(    i  .n  li    I'dn  i    1>\     'Hi  i,il    .niil    iniln';tn,il    }.;i<'"p     niiinpi 
nil  111'-       <^     111!    1  il'in   'iippK    IS  indniiiiril  In   (In-  linntli  m(  (Ih' 
M.^iknio    .l.iv         ~    N\  .t};i"^  ni    iii,in\    iii'l.ini  i  ■;,  ;ut'    I.mi'iI\     «lr 
li  I  111  I  ill  1 1  1>\    \\  li.i(  l,il>i>i  I  I  ■•  (  .111  iii.iKf  111  ill!  Ii  pi  mil  11)  nmli  I  ( ;iK 
tiiv"'-    .illhinij-li    iMilni.iiiU    (Inn     ,iii     no    lnii:i(i\i'    nnli  in  inli  n) 
mill.  I  l.lK  nl!".  -   op.  11    lo   (llrlll         I*      1  111'    '.(.nil  l.ll  il  nl    lllr   I  :  .III   1  \  I  I 
;\(  1 1\  <■  pow  .  1  Inl  (.M  I  r  .illri  ( ini;  dii'  'nipph    i«l    l.ilnn 

1  Il<"«i'  will  lio  I  i'«  «v;iii>' il  -y-  inipiii(.in(  rlrnirn(':,  lin(  (llr 
.ui.iK  -1^  WiMilil  111'  nun  11  iiiini  i  oiiiplrd  i1  .,|inir  ;i((i  nip(  w  i  ir 
til, nil"  to  nit'.iMiii'  (111-  iil.idv  1  nnpoi  (.nii  i  nl  (lir  l^n  (m  ;  I  'ml.  i 
j;i\i"n  t  lu  iinis(.int  o^.  >^onh  l.n  (oi^;  ;\ti'  pn  ninth  ;n  li\r,  u  Iiilr 
otliri'-  ,110  opi'OMont  l(  w  i-  .no  no(  to  lir  lonliiMil  Ii\  ;i  in.iis 
iM  nio.nmioli'ss  ili'l.ul';,  wr  uiii'-t  Know  llirsr  |,\^(^. 

1  lino  .iio  '^(ill  (wo  point',  niiili  i  di'-pnlr  wliii  li  riiilippm  n  li 
tli><on'>so^  1m  lotly  llu\  poitam  lo  llir  I'di'ilsol  a  '^iip|iom'(l 
tf^o  i>t  \v;\i;os 

1     M,\\     \\  ,i>;os    tisv'   ;\(     (lio    (  o-^t    ol    the    iindoi  l.iKci  s  i'       jo 
iin^wvM   (hi>i  (piO"-(ion  inlollij^oiitl\-  wo  nutsl    anal\'7»'  (ho  nmlri 
t.ikoi's  nu  OHIO.      1(  is  in  tho  a^^^ir^att"  iHiiVijJostMl  ol  (i)  wap.i's 
ol  sui>onntonvioiKO,  ( .M  tnloic.sl,  (3)  pioCit.      A  rise  nl  \va}M';  at 


II 

3 


1 1 


\  I 


///■  /■•  1/  /  \    \  •  ,    ;,/  ,  r  /•  S  .f'/i", 


49 

1u  :  <  I'  ;|  W  MIlM  l(|.  .  I  llMII,  til-  l.'iMli  ,  r  ill).  I  ■.{■■  \<  m],  ,  ,  ijul-ili"!!, 
ni      ':|i(  I  mI;)|(»i  \\'.      m.n      ;|;;UIM<      IImI      In;     liil     I  v^  >  •    In  n>  I  inll-; 

<    innnl    In     ,|(|i  I  I.  il   |i\     till':   (  ;iii:r   cvi  .  pi    llit"ii|.||    |||,.    |  ,    |  ( f  ;| 

»i'-''    '■•'"'iM     n.  till     ;ll      (h-     (..|     ,,|     |.(m|iI    ;      III.      imhI'  ll;i|-i   t     \VMI(|f| 

•  "  in  :»  lllMic  Ml|l;l\  Ml  :ili|i  |<i.:iliii||  llim  ||m  mhIiiih^  (  .i)  lil  ,1 1  i';l , 
liM  llii'  lill'i  MM  Imh  :  ill  I  li>  i:i|..  nl  iiil '  I  >  'I  iti':ii  i  iinr ''  ;i(';Mti>'t 
n';l<        ''III  II  :i  pn  :iliiiii    lif  ummM    iii,|   ,  inliii'    p'  itimiii  iill\  .  ;i(i(| 

♦  III     onl\-    I.  ;i;nu     III'     t||j(i|||     I'lnpnl.llih     U(M||.|     Iw      1 1 1 '      i  li  il 'il  It  \' 

l«'  n  iihilcnv  lii"-;  (;ip!til  Mmi  .  mv<  i  _  d,,  mh-'  wmiiM  .  iiilnii  I  in 
iliiliuitlir^  ill   uliii  II   '!iii  II  I  MiMlitJMM<;  pi-  i    liji  «I    .,,  ||,;,|    jn  ,  mmi  :-• 

♦  >(  (ilMf  pIMlIlK  linn  UMlild  »|r(  lidi  _  :i||i|  uill,  ;i  ,j.;,.  i,,  p(j,  ^. 
jiM>rilM  wmild  Itci  utile  iiiiMiial 

llnir  ,ii('  I  cil.iiti    hill. Is  III    iiiilii'iliif)  ill  u'lii' Il  w:i\'i  '■.  u\i\'\i\ 

ri'^r    Widl    lilt    lll|(;iVM|;||i|r    .  ((.  (  I     U|im||     pinfit':  '  ;ll(  Il    ;i  I  (■   (  »  |  |  ;i  if| 

folMH    ll(    lllnllMpnU.   Ml     imllKtl  i»"^i     (mi     wIlM^lf     p|M(|l|r|.!     |||r(f     jq 

;i  M'^in^  m;nl<ft,  ni  |||M<^ic  in  wlii*  li  Mm-  »  m'iI'j  m(  piMflnr  Iimm  »!'• 
<ii;isr  liinir  i;ipi'll\'  fli.in  vv.i^is  ilM  ir;i';c  In  'iii'  li  f  ;i';' ':  llif« 
:i»l\;inl;ij;rc!  i  miM  Ix  ;i|i|iM>|iM;itf'i|  liv  I.iIimi  miiIv  lliiMii(f|i  r  nni 
liiiMlioii  |.;ili(»i  iiiiinii'!.  ;i<!  iii'ilMiiiii'iil';  t'>  l.»  f  |i  w;^"";  fcpin 
fnlliMj,',  ;ii»>  liciirriii.il  iiiiilci  »»'if;iifi  (  in  iiin':f;ifi' rq,  fiofli  in 
« Miii(nlilivp  ;mi»I  niMiKipoli/ril  iin'lril;ikin((';  In  iIm-  fifi;t.  to 
pHvriif   iiii(|(il;il<('m   lioiii    IdW'iinjr    w;i^»  q  nnd'r    the  <;trrss  df 

•  ompclllivc  |il»-ssilir  ;ilii'in^  f  lirni'^;' Ivc;  ,  in  llir  Kt'ni\<]_  wli'ff 
tJKir  is  (III  (il(>ssiiir  (il  (  (iiiiji'  lif  ion,  Im  (Mi'r-  |Ik,';'  to  ;illow 
lullri  (  (iii(|ili(»n';  who  (  ;in  l»iil   will  nof  vo|iuit;inly  (lf»  so. 

II.  Il  li;m  somriimis  ln-m  s;ii(|  ihit  if  w;ijys  shonM  rise  ;,t 
till'  ros(  ol  »  (Miqiinici'j,  hilioms  woiiM  l.c  snflrrffs  in  |||f>  /rid 
I  lir  atmime-nl  is  lluil  |»y  so  minliMM  prK  '  s  ri  '•,  (  ofisnmrrs 
l».iviii|.;  (ixcfl  im  (Miws,  must  (iithnj  iIk  n  f  ofisiirnfition  Hiis 
mt-iiMs  ;i  vv(',ilan('l  pun  liasin^r  powrr  in  (:pff;iin  dir'Mions, 
risiijim^  in  ;i  (Iff  icjisr  of  piodii' ti'-n  ;ifi'l  ,i  f,illinfr  off  m  the 
tlfiiijiiMl  (oi  l.ilifM  powf>r.  I'.ii!  this  is  ,\  point  to  wlii'  fi  ]',r'  ntino 
f>;ii(l  spcci.-ij  aftciilion,  juni  I'hiIippovK  h,  without  in' ntioning 
his  jiiitlioiily,  rtriploy;  lin  rit;ino's  jir^nrrifnt.  ft  i  ;  simply  tti,it 
any  h>,m  of  former  (  onsiinicts'  purchasing  [;owrr  is  fully  rri;KJe 


'-'     II 


50  cr.h'M.ix  ir.u;.'    riii  okies  r^^jC) 

up  by  the  now  ailililii)nal  piinliasin}.',  pt)\vrr  of  I.»l)()rcis  wliosc 
waj^os  have  boon  incrcasctl.  IMiilippovich,  however,  did  not 
fail  to  notici'  that,  if  prices  were  incirascil  by  a  rise  of  vva^cs, 
l.iboiois  wouKI  h).sc  a  part  of  their  wa^je  advance  by  having  to 
pay  hif^her  prices  for  consumption  ^oods.  Ileal  the  same 
time  pointed  out  that  they  wt)uld  not  lose  all  their  adv. nice, 
since  a  part  of  the  burden  of  hi}.;her  prices  would  be  borne;  by 
capitalists,  landinvners  and  professional  men. 

The  tliscussion  of  those  two  (juestions  becotnes  clearer  by 
noticing  the  views  of  Thornton,  whom  b(»th  I^rentano  and 
I'hilippovich  are  either  following  or  criticisinj^.  Ihentano 
wouUl  naturally  consider  Thornton,  for  his  article  in  llilde- 
brantl's  Jahrbiicher  was  devoted  to  a  study  of  the  doctrine  of 
waj;e  increase.  IMiilippovich  took  up  the  discussic^i  doubtless 
because  he  felt  that  no  systematic  work  on  Political  h'conomy 
would  be  complete  without  it,  altliouijh  he  had  nothing  espo 
cially  new  upon  the  subject. 

Thornton'  desired  to  determine  whether  trades  unions  could 
be  instrumental  in  securing  for  laborers  a  permanent  advance 
in  wap;cs  above  what  would  be  .secured  without  union  action. 
He  was  met  at  the  be[;[inning  of  the  discussion  by  the  objection 
that  whatever  the  unions  niij^ht  succeed  in  extortinj^  would 
either  have  been  granted  eventually  without  union  action  or 
could  not  be  lasting,  according  to  circumstances. 

The  first  objection  was  supported  by  the  contention  that  if 
labor  organizations  should  force  a  wage  advance  in  some  par- 
ticular trade,  at  a  time  when  business  was  improving  and  profits 
abnormally  advancing  in  that  same  trade,  it  would  be  but  to  an- 
ticipate what  must  occur  later  by  forces  purely  economic  when 
capital  should  be  attracted  to  that  trade  by  rea.son  of  the  extra- 
ordinary profits  prevailing.  The  advent  of  new  capital  would 
cause  an  increa.se  of  demand  for  labor,  and  wages  must  rise  in 
consequence.     Thornton  admitted  the  force  of  this  argument, 


!  1 


•\     t 


'  On  Labour,  p.  279-321. 


i     . 


'^ 


[i'\c> 


347  J 


IIEh'AfAiW'S  SI  ■(■(  •/•.S'.S(M'.V 


5* 


but  claimed  that  unless  the  unions  intervened  at  the  l)e^;innin^». 
of  the  process  tlie  employers  would  pocket  the  whole  advant- 
aj^e  during'  the  tune  pucedin^  the  advi-nl  of  compelilioir,. 
I'"urlhermore,  if  laborers  wailed  for  competition  to  raise  tlu;ir 
wa^i:s  they  would  suffir  loss,  for  increased  proiluction  follow- 
ing lompi-tilion  in  production  would  Utwer  prices,  and  tlius 
the  source  of  higher  wa^'es  would  he  partially  cut  off.  This 
point  I*hilip|)ovieh  also  notes.  So  tiiuch  K*r  the  efficiency  ol" 
union  action  in  case  profits  are  above  the  j.jeneral  level. 

The  .second  objection  that  hij^her  wa^es,  e.vtorted  at  a  tiHic' 
when  profits  were  at  an  ecjuilibrium  or  were  below  the  general 
level,  could  not  be  permanent,  Thornton  denied  for  the  [greater 
number  of  cases  to  which  the  rule  was  applicable.  Unionism 
can  raise  wa^es  permanently  in  the  following  cases:  (i)  Tho.sc 
in  which  there  exists  monopoly,  for  prices  can  be  raised 
a^Jiinst  consumers  tt)  meet  the  increased  cost.  (2)  Those  in 
which,  whether  nionopolized  or  not,  the  ilemanci  of  customers 
is  increasing'.  Prices  may  be  raised.  (3)  Those  in  which 
economizing  machinery  and  processes  are  being  introduced. 
By  these  means  laborers  are  more  efficient  and  a  greater  num- 
ber of  products  at  okl  prices  is  as  beneficial  to  employers  as 
the  same  number  at  higher  prices.  (4)  A  rise  of  wages  is 
also  possible  if  all  trades  were  united  in  a  combination  so  that 
an  ecjual  and  simultaneous  rise  of  wages  would  produce  a  uni- 
versal fall  of  profits.  In  this  case,  capital  having  no  place  to 
which  to  flee  for  relief,  must  submit.  Tiiere  arc  other  cases 
mentioned,  but  these  are  the  more  important.  In  all  the  cases 
mentioned  above,  excejjt  the  third,  higher  wages  arc  obtained 
only  at  the  expense  of  undertakers  or  consumers.  Indeed, 
Thornton  lays  it  down  as  a  general  proposition  that  wages 
cannot  rise  except  as  prices  rise  or  profits  fall.  Hence  it  be- 
comes important  to  enquire :  in  all  cases  in  which  unionists 
are  the  gainers,  who  are  the  losers?  This  is,  of  course,  a 
difficult  problem,  since  all  are  consumers. 

We  shall  indicate  briefly  Thornton's  answer,  as  it  is  to  his 


*: 


I 


m 


52 


o'/:a\]/.ix  u'.ii;/-:  iiieonies 


[34« 


answer  lli.il  ihi'  (icnniui  economists  take  exception,  lie  says 
that  tliis  will  depend  upon  many  circumstances,  the  important 
ones  bcinj;,  whether  the  ^ain  has  taken  place  in  a  competitive 
or  in  a  monopolized  traile,  or  whether  it  has  taken  place  durinj^  a 
stationary  or  a  proj;ressive  period.  We  will  simply  notice  here 
the  case  of  monopolized  industries.  If  the  rise  occurs  in  such 
an  industry  in  a  prosperous  period,  employers  are  not  injured, 
for  they  can  raise  the  price.  Consumers  are  the  only  positive 
losers  ;  for,  although  they  may  be  compelled  to  pay  more  for 
one  class  of  commodities  than  formerly,  they  may  still  be  able 
to  spenil  as  much  as  before  on  the  produce  of  other  trades.  In 
that  case  laborers  in  general  would  not  be  deprived  of  anything 
they  were  accustomed  to  ;  "  they  would  merely  be  excluded 
from  participating  in  unaccustomed  gains  of  which  otherwise 
they  would  have  had  their  share." 

If  a  rise  in  w;^ges  is  forced  in  monopoli/.ed  industries  during 
a  period  of  stagnation,  consunu  •  are  not  the  only  losers. 
The  main  body  of  laborers,  cxc'  'i  these  laborers  the  rise 
of  whose  wages  is  contemplateu,  are  injured  by  the  fact  that 
the  unionists  have  intercepted  an  amount  of  money  which 
would  otherwise  have  been  expended  in  the  purchase  of  com- 
modities which  the  main  body  of  laborers  produces.  In  a 
stagnant  period,  incomes  are  regarded  by  Thornton  as  fixed ; 
therefore,  if  the  producers  of  one  class  of  goods  succeed  in 
xibsorbing  more  than  the  former  usual  share  of  consumers' 
income,  less  remains  for  expenditure  in  other  departments  of 
trade.  The  curtailment  of  expenditure  in  the.se  other  direc- 
tions diminishes  demand  for  goods  in  these  trades,  and  thus 
laborers  employed  in  these  trades  are  injured.  Thus  Thornton 
regarded  the  gain  to  a  particular  group  of  laborers  under  the 
circumstances  noted  above  as  offset  by  a  double  detriment ; 
first  to  consumers,  whose  consumption  was  thereby  curtailed, 
and  secondly  to  the  general  body  of  laborers,  the  demand  for 
whose  products  was  thereby  diminished. 

This  is  the  point  to  which  both  Brcntano  and  Philippovich 


i 


M« 


34'i 


r//:KAr ixxs  .s/v v  / sso/s-s 


53 


Juring 

losers. 

lie  rise 

:t  that 

which 

coni- 

In  a 

xed ; 

d  in 

mcrs' 

ts  of 

irec- 

thus 

rnton 

r  the 

ent ; 

liled, 

dfor 

)vich 


()t)j('(:l.  As  .ihc.iil)'  noticed,  tluy  c  all  atfiiitinn  to  the  increased 
j)iirchasin^  power  of  the  f.yronp  of  lahoKTs  whose  waj^cs  by 
supposition  havelxin  iiicii  ased.  'I  hi  y  would  admit  tiiat  enn- 
sumcrs  of  the  piddiuts  whose  pru  •  lias  Ixcn  raised  are  suf- 
ferers, hut  they  (leii\'  that  the  |_;eneral  hody  of  lahorers  are 
necessarily  affected.  The  -il-lLMi'^'ate  deiuaiid  for  floods  has 
not  decreased  l)ecause  one  class  of  ronsuniets  has  iKMiefited  at 
the  expense  of  another  class.  Laborers  whose  wa^jes  have 
been  increased  are  inort-  extensive  consumers  than  formerly. 
'I'lu-y  now  possess  an  augmented  purchasiiij^f  power  just  ecpial 
to  tlie  diminished  purchasing  power  of  consumers  affected  by 
hi^^hcr  i)rices.  The  conclusion  then  is  that  when  waf;es  have 
been  increased  at  the  expense  of  consumers,  the  consumers 
are  the  chief  sufferers,  and  that  the  j^eneral  body  of  laborers 
are  not  affected  by  a  diminution  of  demand  for  commodities. 
Tliis  view  would  doubtless  have  been  admitted  by  Thornton 
if  his  attention  had  been  called  to  it,  for  on  its  face  there  does 
not  appear  any  reason  why  the  ^^eneral  labor  market  need 
suffer  because  purchasing  power  ha.s  been  transferred  from  one 
class  of  laborers  to  another. 

If  Philippo'.  ich  corrected  one  of  Thornton's  errors,  he  did  not 
avoid  falling  into  another  one  of  the  same  author.  They  both 
teach  that  in  case  of  monopoly  a  rise  of  wag(;s  may  occur  %t 
the  expense  of  consumers.  Both  assume  that  monopolies 
have  such  control  of  the  market  that  they  can  raise  prices  to 
meet  extra  expenses;  thus  there  can  be  shifted  upon  con- 
sumers the  burden  of  a  higher  wage  cost.  Ikit  if  monopolists 
can  increase  prices  to  their  advantage  after  a  rise  of  wages,  the 
question  forces  itself  upon  us  as  to  why  they  could  not  do  it 
before  the  event.  Since  precise  studies  have  been  made  of  the 
rela'"ion  between  the  price  of  monopolised  goods  and  monopoly 
profits,  it  seems  clear  that  monopolists  possess  no  power  to 
shift  upon  consumers  the  burden  of  a  higher  wage  rate. 
Monopolists  always  charge  the  highest  price  consumers  are 
willing  to  pay.     The  principle  of  charge  from  the  monopolist 


4  ' 


1^  GERMAN  WAGE   THEORIES  [350 

Standpoint  is  the  establishment  of  such  a  balance  between 
costs  and  gross  income  as  shall  yield  the  highest  net  return. 
In  general,  the  number  of  consimiers  of  a  particular  good 
varies  inversely  as  the  price.  An  increa.se  of  wages  constitutes 
an  expen.se  chargeable  to  an  undertaking  as  an  undivided 
whole,  and  is  not  one  which  varies  with  the  amount  of  the 
commodity  produced.  Such  a  charge  must  be  borne  by  the 
monopolist,  for  if  he  attempted  to  escape  it  by  raising  prices, 
consmnplion  would  be  diminished  so  that  the  monopolist's 
net  income  would  be  decreased. 


i 


i ' '    i 


, 

V       ' 

i    ■ 

- 

liil 


CIIAPTKR    IV 


CRITICISM 


It  is  proposed  now  to  discuss  briefly  two  points  pertaining 
to  the  work  of  this  entire  group,  the  centre  of  which  is  Her- 
mann. The  first  point  concerns  the  method  of  approaching 
the  wages  question  by  all  the  German  economists  from  Rau  to 
Phihppovich.  The  characteristic  method  is  to  state  that 
wages  depend  upon  the  law  of  supply  and  demand.  In  the 
same  manner  that  that  law  determines  the  price  of  commodities, 
so  with  a  few  corrections  it  determines  the  price  of  labor. 
The  reader  of  the  German  work  on  wages  is  referred  to  the 
analysis  of  supply  and  demand  as  applied  to  commodities,  and 
then  finds  the  author  employing  the  same  terminology,  with 
here  and  there  a  word  chraiged  designed  to  suit  the  special 
case  in  hand. 

The  criticism  of  this  method  as  applied  by  the  group  under 
consideration  is  that  not  sufficient  emphasis  is  laid  upon  the 
very  peculiar  nature  of  labor  as  a  commodity.  This  peculiar 
characteristic  is  illustrated  by  the  application  of  the  law  of 
supply  and  demand  to  different  kinds  of  exchangeable  values, 
and  by  the  analogy  that  may  be  drawn  between  labor  power 
and  certain  kinds  of  goods. 

If  we  undertake  to  rely  upon  the  operation  of  demand  and 
supply  as  a  practical  rule  to  regulate  prices  in  all  industries 
and  for  all  servit:  .-s,  we  shall  find  that  the  rule  does  not  apply 
wi^h  equal  facility.  The  law  of  supply  and  demand  as  a  regu- 
lator of  price  can  be  applied  with  the  least  advantage  with 
regard  to  goods  or  utilities  which  are  produced  by  a  body  of 
capital  that  can  be  easily,  and  with  small  loss  by  the  change, 
35']  55 


5^' 


(,/■  K.]n\  u  u;/-    /■///•  ('/,'//■  \ 


;s.' 


A 


4    S 


it\<"ic",»'-r(l  or  tliniini'-lii  (1  Siu  Ii  would  \<v  the  cikc  with  i  .ijul.il 
inv<"'1('il  in  llic  '1o(k  <  \(  hiinjM-  oi  m  It.mKini;.  Sn|i|il\  ,md 
(I(  niiuiil  \\.\\c  somewhat  los'-;  .ijiplit  .ilioii  m  ,i  iin  u  IkipI's  Ixi'.i 
ncss,  slill  less  in  tn.innl.ictni  iiu',  anil  li;r-l  ol  ,ill  in  lian-noita 
lion,  ospcM  lally  lailio.dl  Ir.nispoi  talion.'  naiiKint;,  tiadiiu;, 
nianntat  I  ni  nu^,  and  tailioad  tiansporlalion  »  ttn'-tilulc  a  scrip's 
ol  nnd(-i  lakin|.;s,  at  oiu-  rnd  ol  whitli,  iianknu;,  llic  priiK  iplcs  o| 
snppl\-  and  di-niand  m  iciMilatini.;  piuc  Iroin  iIm-  slaiidpoinl  of 
rosts,  appl\'  willi  llio  most  satisl.K  lory  i<'s\ilts;  and  a(  llic 
otIuM'  rnd  llu\s('  pi  iiu  ipl(-s  hav("  l<'ss  \.ilidi(y.  In  tin-  \y.\\\\< 
ins.;  Inisinoss,  ncarl)-  all  tlio  «.a|)i(al  is  rirciilatinL^  lapital.  \n\\ 
in  the  railr(\ad  husimvss  a  lat^(M-  propiMtioii  is  fixed,  and  these 
opposed  conditions  make  a  ^roat  dillei(MU'(>  in  the  praelieal 
workini;  ont  <il  prices.  In  the  hankiiu;  hnsniess,  nndii  Irec 
c<Miipctition,  i1  the  price  j^dcs  nineh  above  th("  costs  c^l"  pixnhic- 
ti(Mi,  the  nnnsual  profits  attiact  capital  into  the  hnsiness  (ill  an 
0(]uilihriuni  is  established.  II  piices  fall  below  costs  of  pro 
(hiction,  fnithci  ]H-oducti(Mi  ceases  till  the  ccpiilibriuni  is  al^lin 
rcstoicd,  and  tluis  prices  hover  clos<>  to  costs.  ( )f  (he  whole 
capital  invested,  the  i;rea(er  (he  proportion  that  is  ilxeil.the  more 
dilVuuh  it  is  to  ailjust  inves(nienl  to  chanj.;e  o{  price.  W'heti  it 
conies  to  a  business  like  (he  railroad  business,  (he  cos(sorpi<» 
dnction  ov  the  cosi  itl  serxice  have  b\it  sliLjhl  influence  upctn 
chari;es.  If"  conipeti(i«tn  forces  prii  .  s  behnv  costs,  there  is  nn 
ectinoniic  force  ti^  lestore  it,  e\c<'p(  suih  as  woik  (hioujdt 
loui;  periotls.  In  a  merchants  bvrsiness,  sales  b("lo\v  cost 
c.uise  a  };r(\\ter  los:.  the  L;reater  the  amount  o{  sales.  Hut  in 
(he  lailroad  trafVi*-,  ,\\\\  Inisiness  (hat  pays  more  th.m  immedi 
ate  e\pons(\s  is  wortli  morc^  than  no  business.  When  a  m(M  ■ 
chant  becomes  bankrupt  he  ceases  to  compete.  Hut  a  bankrupt 
railio.\d  is  a  more  dans^erous  comi^etitcu"  than  a  sound  ro.id. 
In  .1  merchants  business  (he  law  of  supply  ami  demanil  may 
he  relied  upon  to  aeljust  prices  lor  the  best  j^ood  of  the  com- 


i 


Ti";^ 


35  31  ih' ITU  ISM  ^j 

niimily.      \\\\{  m  the  ijilin.i.l  Imsii, ,•■;■;  ( f>iiil)iii;iti.,n  and   a^rcc- 
mrnl  sc.in  ||ic  ,,nly  iiic.iiis  lo  av..i(l  mduMiial  wailaif. 

Now  I  Ik-   (jiK-.tidii    ,„-,nrs,  is   lal.m  |„,vv,i ,  as   a  (  MiiuiKuIil^-, 
aiiald^M.iis    (..    Iiaiik  service  or    hick  liaiits'  ^;m(,<Is,  ,,,•  is  it  more 
aiialo;;oiis   (,,   (ai  toi  y  |  .i  odii,  Is   and    lailioad  sei  vi(  c;'      'Iliis  is 
'"M""l'>"'.  I"<aiise   i,|„„,  II,,.  .inswer  will  d.peiid  ihe  extrnt  lo 
wliich    we   can  wisel\-  and   willioiil    i;real    ino.lirication   eni|.I..y 
the   same   aiialx'sis  of  supply  and    <!(inaiifl    (hat    mi^dit  he  em- 
ployed in  referenee  to  competitive  ;;oods.      The  lahorec,  for  (Ik; 
purpose  contemplated,  lu.w  o(cnpies  (Ik-  saiiK-  position  in  rela- 
tion to  his  lahor  power  that  the  hnsin<\ss  man  f)r  capitalist  does 
to  the  connno<lity  or  ntility  lie  produces.     The  lahorer's  capital 
IS  himself.     As  the  business  man  maintains  hi.s  capi(al  only  by 
producin-:  and  .scllin^r   the   utility  his   capital    is  fitted   tf)  pro- 
duce, sf)  the   laborer  is   maintained  by  excrrisinf^f  and  sellin^r 
his  labor  power.     The   kinds  of  business  referred  to  above  as 
a  .series  differ  in   two   respects.      Tirst,  in   the  ability  to  cease 
producin^r    withf)ut     serious     detriment     lo     the     investriKMit. 
Secondly,  in  the  fre(;(lom  and  ea.se  of  transferrin^.^  the  value  of 
the   investment.      Jn  these  two  particulars  l)ankin},r   is  at  one 
extreme  of  the  series  aiul  tlie  railroad  business  at  the  other.     A 
banker   may  cease   discountinj.,^   without  serious   injury  to  the 
plant,  and   may  easily  dose  up  business  entirely,  transferring 
the  value  of  tiie  cajjital  to  another  business,     A  railroad  cannot 
cea.se  transjjorling  witliout  serious   losses  in  fixed  char^a-s  and 
in  deterioration.     It  is  comparatively  useless  as  a  boriy  of  mere 
property.      Nearly  all  the  value  is  in  the  busi.ie.ss,  so  that  it  is 
next  to  impossible  to  decrease  the  supply  of  transportation 
accordinj^r  to  the  demand  for  it  at  old  prices.     The  suf^ply  is 
kept  up  at  such  prices  as  will  secure  business.     With  reference 
to  these  last  points  labor  is  more  analofrous    to  the  railroad 
business  than  to  bankin^r.'     A  laborer  cannot  cease  .sellin^r  hi.s 
product  without  .serious,  and  it  may  be  permanent,  detriment  to 


W/ii</ley,  A'dilrvnd  Trnns/>orl<ifiott,  p.  78. 


i 

1 

1 

1 

1 

11 

i 

, 

! 

!iV 

*  •' 


mm 


58 


GERM.tX  '    AGE   THEORIES 


[354 


his  investment,  that  is  himself.  And  here  the  laborer's  position 
is  peculiar,  in  that  he  carries  upon  his  shoulders,  so  to  speak,  the 
future  supply  of  labor.  If  his  labor  should  cease,  not  only  is 
his  own  investment  damaged,  but  that  of  others  who  are  de- 
pendent upon  him.  It  is  as  if  a  business  were  being  conducted 
not  alone  for  the  sake  of  the  owner,  but  also  as  a  support  for 
the  business  of  others,  so  that  if  the  one  ceases  the  others  of 
necessity  fall  also. 

Neither  is  the  laborer  free  to  withdraw  his  capital  and  pro- 
duce something  else.  The  laborer  never  has  anything  to  sell 
except  labor  power.  If  capital  does  not  wish  to  buy  what  he 
offers  for  sale,  there  is  no  hope  for  it.  Capital  buys  at  some 
price  or  the  laborer  goes  to  the  poor-house.  These  two  con- 
siderations make  it  as  impossible  for  labor  to  cea.se  selling  its 
product,  as  for  a  railroad  to  cease  running  its  trains. 

This  analysis  discloses  the  peculiar  nature  of  labor-power 
as  a  commodity.  Its  immobility  is  a  serious  obstacle  to  the 
reduction  of  wages  to  a  common  level.  Its  comparatively 
permanent  supply,  together  with  its  necessary  productive 
activity,  retards  the  correcting  power  of  supply  and  demand. 
We  may  say  that  the  operation  of  the  law  of  supply  and  de- 
mand in  its  application  to  labor  is  greatly  impeded  by  friction. 
And  in  any  practical  treatment  of  the  wages  question  such  as 
is  found  in  the  German  literature,  the  friction-element  ought 
to  dominate  the  discussion  more  than  it  does. 

None  of  the  authors  of  this  group  take  pains  to  point  out 
these  characteristic  differences  between  labor  and  competitive 
commodities  except  Philippovich.  But  the  differences  dis- 
cussed by  hiui  have  slight  effect  upon  his  subsequent  treat- 
ment. Rau  designated  an  upper  and  lower  limit  of  price,  and 
appealed  to  supply  and  demand  as  forces  operating  to  deter- 
mine wages  at  some  definite  figure  between  those  limits,  liut 
the  result  is  vague  and  indefinite.  Hermann  employed  the 
familiar  procedure,  but  omitted  a  discusiiion  of  that  part  of  the 
question  which,  according  to  his  method,  would  have  given 


I  it' 


'I 


[354 

s  position 
speak,  the 
ot  only  is 
o  arc  dc- 
oncliicted 
ipport  for 
others  of 

and  pro- 
ig  to  sell 
•  what  he 

at  some 
two  con- 
^lling  its 

or-powcr 
:le  to  the 
aratively 
od  native 
demand, 
and  de- 
friction, 
such  as 
It  ought 

oint  out 
ipetitive 
ces  tiis- 
U  treat- 
ice,  and 
3  deter- 
s.  ]iut 
'cd  the 
t  of  the 
given 


355] 


CAW  77  C /S.I/ 


59 


him  an  opportunity  to  point  out  the  comparatively  permanent 
character  of  the  supply  of  labor.  Having,  however,  placed 
wages  in  the  same  category  as  the  prices  of  commodities,  he 
practically  sets  aside  all  factors  as  having  no  force  except  con- 
sunu-rs'  income.  Although  his  followers,  for  the  most  part, 
enter  upon  the  discussion  of  wages  by  an  elaboration  of  factors 
identical  with  those  applied  to  determine  the  prices  of  commo- 
dities, they  ultimately  appeal  to  some  one  as  really  final. 
When  this  is  not  done,  as  in  the  case  of  Philippovich,  the 
whole  treatment  is  confused.  All  recent  writers  practically 
adopt  Hermann's  view.  It  is  desirable,  therefore,  to  enter 
upon  some  discussion  of  consumers'  income  as  the  source  and 
determinant  of  general  wages,  and  this  is  the  .second  point  in 
the  criticism. 

It  will  be  recalled  that  Adam  Smith  pointed  out  that  there 
was  necessarily  a  minimum  rate,  below  which  it  seemed  im- 
possible that  even  the  lowest  grade  of  labor  could  subsist  for 
any  considerable  period  of  time.  This  lowest  rate  for  any 
family  must  be  more  than  sufficient  to  support  the  man  and 
wife.  When  it  went  below  this,  it  failed  to  be  consistent  with 
the  needs  of  common  humanity,  and  had  the  effect  of  produc- 
ing a  dearth  of  workmen.  However,  the  possibility  of  raising 
wages  above  the  minimum  depended  upon  the  increase  of  the 
*'  funds  "  which  are  "  destined  for  the  payment  of  wage.  ."  These 
funds  were  of  two  kinds:  first,  the  revenue  which  is  over  and 
above  what  is  necessary  for  the  maintenance  of  the  employer, 
and  secondly,  capital  which  is  over  and  above  what  is  necessary 
in  order  that  the  employer  may  conduct  his  business  on  any 
given  scale.  In  the  first  part  of  the  section  on  wages,  he 
showed  that  wages  were  the  result  of  a  contract  entered  into 
by  laborers  and  employers.  In  settling  the  terms  of  the  con- 
tract, the  employers  have  the  advantage.  In  the  long  run, 
laborers  may  be  as  necessary  to  employers  as  employers  are  to 
laborers,  but,  practically  speaking,  it  cannot  be  a  question  of 
"  long  run  "  with  workmen.     Employers  could  subsist  for  a 


('^,^ 


/•  ,V  1,  ;  \     n    /..A     /AV-f'A'//-  v 


r." 


l^^n■■  t  Hill  iin  |M  c  '  •  n1  .\i  I  (innilil  loii'  "  M  \n\  w  >  vi  1  n\i  n  >  •  miM 
i^M  '.iilv.r-1  \  \\  •  I  K  ,  I.  w  I  iMiliI  '.\il>M  .(  .\  nii'Mlli,  .iml  -i  ,iii  i  in\ 
.\     \  <    n  ,     \\  ilhiM'l     1  l\lj^ll^\  lUi  n1   '    '        \i'(  w  il  l\    I  \nilin!'     \\\>      t  i'  I . 

Ill  ><V  1    \  1    \  .     (  ll.l<      1    n\pl^^\   I    I    .     Il   W  I        1  111        ,\i  1\  ,inl  ,1|    I    ,     V\  ,\i'l     :      |i  M       (  l\i' 

iiii^  •(  I  \\i  (  .Hi  .i1>i'\  1  (111  \iiinininin .  nil  1  ( li  I  (  ii  i  p,  ni  >(  1 1  >  I  h' 
r(";;i  1  til  I !  ,  fill  :'i>i^il  \\  .111  '  1>\  nil  I  I.I  ini'  1 1ll  i  (lii  ii  ni  \  1 1|  v\  i  'i  I 
mm,  irili>unil  1i'  llii  ilrlmil  .iil\  .\nt.i!'<  <*l  ':i>iii1\  'm>iiii' 
uioii-.ih  .ition  i'(  llir-  l.i'.f  pi  iipi  ".i(  ii'ii  I'  Ml  I  I  :  ..ii\  .  '.nil  i-  Uir  ir 
;ii .  1\\  i<  K  niil'-  iM  l.\I^i'i  1  I  .  .  oi  1 1  poniliii!'  ( i>  ( lii  I  \\  ■  <  1>  im  1  ;  nl 
inn.]'.  (iM  ihr  p. i\  nil  111  l^(  \\,\i'i-;  (1^  I  .llii  M  I  I  ;  \\  liii  .III  piitl 
liiMM  '.)i'(  Iv  ,\ir  '.111  Ii  .V-  1>\  ihi  II  1  \i  tdiMv:  iilil  (i>  llii  \\>  .illli  ii( 
"•i>i  u  (\  1  hr\    .(ic    "  )M  i>il\ii  ( i\  (•  "       ^   M    1     iboi  I  I  ■;  w  lio  ;n  i     p  ml 

1li>\ll    ir\inili-    .liliI     iiiliiii     Mixiii'i;     >;inipl\  Hit  \     mitll'^til     111 

p.■l^^^n.^l     i  n  1 0\  11 1 1  II  (  ,  1 1\  I  (     ihi  II     pioilinl     pi  ir  111    :   Willi     lln'    (it  ;( 
lisr.  .liul    thru'    \^    .lililr.l     llolllMl!;    1"    '111  111    Wi.lllll         Sill  ll    l:ll'i'( 
i«;  "  iinpi  oilut  ti\  1'   '       Ail.nii  ,'miiiIIi    iii.iKi  ■;  i1  »  Ir.n   (Itnl    pioiliii 
li\<'  ]>io«  T'-srs  evil  111!   o\  <  I    pi  imds   ot   1ini<  ,   ;iiiii  lll.il    \\  ;ipi  ';  me 
•uix  .nil  «il   ti^   l,ll>Ouis    l>v    till     owiii  !■;   f{     Wi'.illh   ;i';  till'   (I  ■ill!)   ■>( 
A  h.iii^.iin        l^ul  ihr  «\,ii  1   niliin   of  llic  limd';  hcM  l>\'  <  iiipl<i\- 
<M ''   I--   n.M    ni.lil.-   liu  ul  "         1  lui',   lllcii-  ,111'   1\\(>   lIlciMlcs   n|     \\;l!'i  ■; 
in  (lir  Wi-.i'illi  «>l   X.ition'^       Onr  r^  tlir  nimminni  WMpr   llnnn, 
till-  olliii    I--  till"  lliioi\    ol  <ltiii,ni«l    ,uiil  '-iippU  .  till'   l;illi  I    «i>ii 
nc.  t(i'.  With  iIk'  iilti  «>i  Iniiil^  f<n   ll\r  p.>\  nicnl   oi  w.ipi  '^ 

l\n.ii.i.>''  liiMdiiciU  liil'tiiril  '.onirw  li.il  liiMii  All. nil  .''iinlh'. 
'Vlu'  nun  mm  ni  w  .\p,<'  p-  w  illi  K  u  .lulo  t  lit  ii.it  ni  ;il  pi  ii  r  ul  l.ilu-i, 
;1  ii'W  .u  <1  w  liu  h  r-  "  nr>  r'-'-.ii  \  to  (  n.iMi'  tlii  lilion  i  ■;,  niir  Willi 
anothv'i ,  to  Mih^r-t ,  .in<l  t  o  pn  pi  t  n.itr  tlirn  i  .u  r,  w  illioni  i  il  li  i 
in»  ivM'^i-  oi  (Inr.mntion  "  .\n\  <ir\  i.ition  lioni  tlip;  i.ilr.  Ii\  ilir 
v-ipvM.iiion  vM  '-nppK  .iiwl  iKni.iiu!  r.  i  .ilKil  ,i  "  iii;ii  Kcl  "  i  .ilr, 
1  liv~  l.ihoi\M^  .in"  >n  .1  tloni  r-lini;^  .in<l  li.ipp\'  t  oiiililiou  il  tlii" 
m.ukcM  i.it*'  I-'  .a1io\  r  tlu-  n.it  ni  .il  i  .itc,  .in«l  ni  .1  "  tiio-t  w  k  li  lii  il  " 
c.Miiiition    it    it    r>    below    the    n.itni.il    i;it(\       Ihis   sLiIchk  iil  is 


'  Ivoi^i'i  v"  ,'il  I'll  ,  A    1 ,  p.  7<v 


I  r<'> 


r^; 


lAwr/i/sif 


6r 


Ml  n  I  1  Mil, I 

■<   .>l  I   I        MM 

111-      1,1.  I. 
n.'l  1,.  Iw 

I  '(     \\   I  M  I 
\  '>.MH, 

111    >        ill.    I, 

Km.  I:  ,>( 
111  piiil 
VM  .tllli  .>( 
'  :ni  |i  ii.l 
iiii';(i  I  I,, 
till'  (n.;( 
II  li    l,ili,«i 

I'l  Mlllll    - 

■■i!;i";  :n.- 
I<.;|||)    n| 

>(  VXM.'.q 
•  I  111  111  \  , 
li'I     (I'll 

Silllllr;, 

I  >i  l.llll'l  ^ 

Mil      W  III) 

II  iillr  I 
.  I'\  llir 
(  "  i.il,'. 
I    ll    llii< 

f.  ill  .1" 

III.  Ill    IS 


lllllill     iiImIiIh  ll     |.\       K'|.;ui|..    lit.  I,    ii*|lil     III    'I;!!.  Ml.  Ill     ol      ill 
(  ill|ill;i'^ir\  :i';  li>ll.  t\\  ■; 

'         I  ll'     "  ll.lllll.ll  "    l.ll.     |.,    Mill    In    lir   llllili   t    .|..i.,|    ;|.;   ;i||.;(i|||lrly 
llM  "I  I  Ik     ll:ll'll'<    lllil   I  II  Miilll'J  m(   III.     |i.  .i|)|.     Ml;il;(    ;t  (liKi'MIK  p 

l>.  l\v<  111  ilild  ll  III  II, ill. hi:.  ;miiI    III  lui  I  n  iliK.  i(  III  |i(  ijiiih  III  |Ih« 
i.iiiH    M;iliii|i 

^       NnlWllll'  l.lllilill(;     111.       'M;ll.  Mil  III    ..(     till      iMI|i..||;iMi  ''    .>!     IIh' 

!i|;m<l;inl  <>(  lil<  ,  il    m  |i|;m  li.  ;ill\-   i^Mini.  i|    in  llir  >:iili.:r(|ii>  t|l   i|i.;- 
(  il^^'jidll';  nil   l;i\;ilinn,  .liid  llic  ^t-iK-tal   |iinli|rMi<i  n(  i  list  lililll  inn. 

I    M.iiKrI    \va^<  s   s«('iM   In   have   'jmall    iiiIcK  si    in  Ui(ai»lo, 
pinlialily  Ixiaiisr  iialiiial  \va(,M  <;  limiislml   llir  l<ry  In  (lisltihii 
tmn. 

Krvrniir   iinwlicir  a|i|i(ai'^   as  |t|,iyiiu:  a  |iail    in  flu-  drmaiwl 
Inl    lahnl  llr»nn|<    inln  (  nnsii  |f|  al  mil  «  ml)'  I  linsr   |;iIim|  rm  who 

aii-  liiird  liy  «  apilalisis  with  a  virvv  fn  k  ;ili/c  .  n  llir  invcst- 
iiirnl,  anil  sn  (at  as  fiiail<<l  vva^i-s  an-  (.Misidci; d,  \\r  rffanls 
tliriM  as  (l(>l(iiiiiit.-(|  l.y  llir  iclal  HI  n(  lapilal  and  |.n|iiil;i(inn. 
Ill  his  essay  "  (  )ii  (In-  Inlliimi  c  nl  'w  I  ,,,vv  I'ik  <>  »»f  (  niri  on  \\tr. 
I'lnlils  or  Sini  l<,"  Kiiaidn  savs  that  »h»-  risr  nt  fall  «»r  wa^'s  in 
th(-  slalinnaiy  sla((<  is  icfMilatcd  wlinlly  hy  |hc  itn  rr-asr  or  dr- 
(  M-asc  n(  Ihr  |in|inlalinn.  In  the  advanrin^r  sfair  if  di-pcnds  on 
wluihrr  thr  capital  ni  pnpMlatmn  advaiK  r  at  \\iv  innrc  (a[iifl 
•  (iiirsc.  In  Ihr  u  tiojn.nlr  stale  if  depends  upon  whether 
pnpiilatinn  ni  (  apilal  (le(  rease  with  the  joealer  rapidity.' 

As  the  iiK  niiK  iii(Mitinn<'d  l.y  Adam  Smith  was  that  of  the 
eniplnyer.  and  in  his  view  would  exercise  iriflneni  e  (,n  wat.'es 
only  so  far  as  il  was  used  to  employ  domestic  servants,  the  m 
<ome  side  nf  A<lam  Smith's  waf^'es  fimd  would  he  naturally 
IK  (derfed  so  soon  as  writers  cfmie  to  re^jard  the  most  im- 
porlanf  ( .ise  of  wajjes  as  arisitij,;  whr-n  men  were  employed  for 
a  profit  Nejf.eded  it  eerfainly  was  and,  if  ff,r  tlie  fe;ison 
.staled  ahove,  the  nefdijjeiu c  is  jiistihed.  I'.iit  viewing,'  I.fo- 
noniKs  from  tlie  side   <>\   prodiK  tion,  and    pr(»diif,tion    from  the 


'    //V';/t,  (..    ^7';. 


■( 


62 


u  IK  MAX  ii:i<;/-:  ////■:  i  >  A' //■:s 


L358 


rm 


siilc  of  capital,  I'jij^lish  writers  were  led  away  from  consump- 
tion ami  tin;  tlcm.uul  of  consinncrs  as  Icailcrs  in  economic 
activity.  It  is  at  this  point  that  Hermann  made  a  departmc 
from  the  traditions  of  the  science,  and  intercepted  tlie  paralin' 
course  of  thinking;  on  wa^es  in  Ivn^Iand  and  (lermany.  Cap 
ital  is  repuih.ited  as  the  source  and  determinant  of  waj^es.  The 
key  to  tlie  situation  is  no  longer  held  by  the  employers  but  liv 
the  consumers.  ICmployers  are  mere  agents,  middlemen,  whd 
do  the  cc^nsumers'  bidding  for  a  commission.  The  consmiu-i 
is  the  real  buyer  of  labor.  All  the  steps  leading  to  the  final 
prcnluct  are  taken  for  the  final  consumer.  The  true  and  con- 
tinuous source  of  compensation  for  production  is  the  inconie 
of  the  buyer  of  the  product  for  his  own  use. 

This  doctrine  has  been  followed  generally  by  the  German 
economists ;  but  in  I'jigland  it  has  not  received  very  strong 
support.  In  the  first  place.  Mill  attacked  its  main  ()osition  in 
liis  famous  proposition  that  a  demand  for  commodities  is  not  a 
demand  for  labor.  Mill  thought  it  important  to  support  this 
proposition  because  its  contrary  was  so  widely  r.^sumed  by 
common  api)rehcn,sion  ;  and  because,  with  the  exception  of 
Say  and  Ricardo,  most  economists  fell  into  the  error  in 
some  part  of  their  thinking.  Up  to  Mill's  time,  however,  it 
formed  no  integral  part  of  their  theories  of  wages.  Although 
of  late  some  of  Mill's  reasoning  on  this  point  is  not  accepted, 
the  whole  of  it  passed  practically  unchallenged  for  twenty 
years.  In  the  second  place,  when  I.onge  and  Thornton 
adopted  Hermann's  point  of  view,  and  tried  to  persuade  their 
countrymen  of  its  soundness,  with  some  success,  if  judged  by 
Mill's  action,  Cairnes  submitted  the  doctrine  to  a  careful 
analysis  and  published  the  results  in  the  form  of  an  elaborate 
attack  in  his  "  Some  Leading  Principles  in  Political  ICconomy 
Newly  ICxpounded." 

There  is  something  very  plausible  in  the  idea  that  demand 
for  commodities  determines  the  aggregate  amount  of  wealth 
spent  in  wages.     It  is  of  a  kind  with  the  popular  conviction 


■;i 


consiimp- 

cconoinic 

ticpaitiiic 

lie  par.ilUi 

ny.     Cap 

iK<-'s.    Tlic 

CTS  l)U|   1)\ 

•tncii,  wild 
cfnisiiincr 

<)  tin:  lin.il 
and  con- 

lie  income 

c  German 

'ly  strontj 

•osition  ii) 

-s  is  not  a 

jport  this 

timed  by 

eptioii  of 

error    in 

)wever,  it 

\lthoiitj[h 

ficceptcd, 

'    twenty 

horntoii 

ide  their 

dged  by 

careful 

laborate 

conomy 

demand 
"  wealth 
nviction 


t 


359J  rA'/r/i/.s.u  63 

that  the  "  extravafjance  of  the  rich  is  the  {,'ain  of  the  poor,"  or 
that  "  [)rofusion  is  for  tlu;  ^^ood  of  trade.'" 

The  source;  of  the  error,  as  to  vva^es,  seems  to  be  the  failure 
to  distinguish  between  general  and  particular  wa^es,  wa^es  of 
all  laborers  and  those  of  ^roui)s  of  laI)orers.  Tlu:  discussions 
on  wages  are  for  the  most  part  Ljrouped  about  three  (juestions  : 
(i)What  is  the  true  source  of  the  (piantity  of  real  floods  which 
laborers  as  a  body  receive?  (2)  What  determines  the  ([uan- 
t'ty  ?  (3)  VVhat  determines  the  share  of  any  particular  group  ? 
Let  us  consider  briefly  these  (juestions  in  the  ordi:r  stated. 

I.  It  is  evident  that  it  is  from  the  total  productions  of  society 
that  ultimately  all  wages  must  come.  It  is  also  evident  that, 
under  our  present  system,  wages  cannot  absorb  the  whole:  of 
that  product.  The  first  difference  of  opinion  appears  when 
the  attempt  is  made  to  designate  the  particular  [)art  of  this 
total  product  which  furnishes  wages,  or  the  habitual  form 
which  it  assumes  as  a  source  of  wages. 

All  goods  have  a  career.  For  some,  the  career  is  short,  for 
others  long;  some  are  destined  to  give  direct  enjoyment  to 
society,  others  to  help  in  the  process  of  production.  The  trac- 
ing of  the  career  of  goods  is  a  comparatively  simple  process. 
Under  our  wage  .system  they  are  first  in  the  hands  of  the  en- 
trepreneur class,  then  in  tho.se  of  the  trading  classes,  and  fina  ly 
in  those  of  the  consumers  or  users.  To  be  sure,  some  goods 
suffer  destruction  by  fire  and  some  by  accident,  while  some  may 
revert  to  the  trading  classes  as  second-hand  goods  ;  but  if  they 
fulfill  their  proper  destiny,  they  finally  disappear  in  the  users' 
hands.  There  is  a  continual  inflow  at  the  one  end  of  the  line, 
and  a  continual  outflow  at  the  other.  The  complication  comes 
when  we  attempt  to  note  the  causes  which  determine  the  posi- 
tions which  classes  hold  with  reference  to  the  flow  and  ebb  of 
goods,  and  the  relations  of  the  classes  to  each  other  as  an  out- 
come of  the  various  positions.     Could  we  cause  the  economic 

*  Cairnes,  Political  Economy,  p.  163. 


(y\ 


(,/•  A'  1/  /  \   II  ti-r    riui^Kif'  s 


I  y.n 


IM 


llii\  .111(1  ihf  111  i,il  llns  III  «  I'.i'.c  Ini  ,1  lime  uliilr  \\r  imliil  llic 
\,\iii<us  piv.idmis  i>l  jMiods  ,Hiil  <  l.issrs,  \\  r  ukuIiI  IiikI  'niiii 
j'oi'ils  |\i  >1  i><';iimf;  Inilh,  othi'is  p.isMn);  .i\\.i\-,  slill  oIIhis  im  ,iII 
st.i^i's  of  inltM  nil  tli.ilr  |ii(i;mcs'<.  W'c  slioiild  .ilsn  liml  .HI 
classes  of  men  (onmni'd  with  flic  tlis';j|i,»iioii  of  jmmkIs  in  flic 
|MiM(>^.s  of  wh.it  \vc  « .ill  «oiisnm|ilion  llicic  is  jMcjit  (livrrsit\- 
in  tlu'  v.ihii'  of  ^;oo(ls  fluis  (  onsiimcil.  as  .il-.o  \\\  flic  n  oiioiii\- 
ai\tl  pinfii-iciU'ss  of  roiisnin|<fioM. 

(M  these  'onu-  t.jkc  no  |i.iit  wlntrvn  in  the  ntflow  of  jm)o(Is. 
<M  ihoso  who  do,  we  disfiivjnish  ( I )  tilt*  so  railed  sin, ill  |iio- 
(hui"i  who  «  oinhines  his  l.ihoi  with  some  ai  i  innnl.ition  in  the 
jModiii  tion  of  i;oi>ds  ,  (,')  those  who  have  hiifM-  art  niniilalions 
ol  then  own.  or  that  whieh  belongs  to  others  ;  (  ^)  those  who 
have  little  oi  no  aeeumnlation,  and  aie  employed  Ity  the 
second  elass.  The  prohleni  of  «list!  ilnilion  is  a  study  «>l  the 
eanses  whieh  determine,  for  final  «-on;iimption,  the  pi(»poi 
lion.ite  assij;nment  of  the  t«»tal  piodiutions  of  society  to  soi  i.ij 
classes.  Antl  the  wa};e  ptohlem.  as  a  part  of  the  (puvstion  of 
tlisiiihtition,  so  far  ,\s  the  source  of  wa^es  is  concerned,  is  ,\ 
«lon'le  one.  1st,  To  what  sta^^c  must  products  anive  lief'oie 
thcN'  become  (he  source  of  wa^es  ?  ,'d.  Into  the  possession  nl 
what  class  tuust  they  come  to  he  su(  h  .\  source?  Some  hold 
that  the  source  of  waives  is  a  portion  of"  wealth  held  by  em- 
plovers  in  its  form  of  food  (t-.ipital) ;  others  that  part  which  tli<> 
lab«ircrs  have  immediately  helped  to  produce  (^product)  ;  still 
others  that  part  hcKI  by  ilcalcrs  »)t  commoilities  in  the  lorm  ol 
laboKMs"  Ci>nsmuption  ^oods  helil  for  sale,  /.  /•..  capital  in  the 
hands,  not  ot"  cmplo\-ers.  but  of  merch.mts;  and,  fin, illy,  some 
rci;ai(l  it  .is  th.U  |virt  o'i  wealth  which  is,  or  is  about  to  be.  m 
the  h.uuls  of  the  consumers  ot  laborers'  product  as  a  money 
income.  Herm.mn  and  his  followers,  t^f"  course,  arc  identilud 
with  the  last  view. 

11.  The  second  question  pertains  to  the  determination  of 
the  quantit\-  o\  real  _t;oods  j;oini;  to  labor.  As  men  dillei  in 
regard  to  the  source  ot  wages,  s»)  they  ilillcr  as  to  the  cause  ol 


I 


<■  i    '*» 


''it' 


((tl  I 


.i'" 


i  h'l  lhl\M 


65 


the  ■inumiil  Ilinsc  who  l<)ul<  lu  the  cmiiloyri '.'  •  ,i|)if,il  as  ihc 
sniiM  I  ,  tliiiiK  tli.ll  llic  '.l.itr  1)1  \\\v  ails  prim  i|).illy  flrfciiiiincs 
what  |iiiiliim  <>(  tdtal  (.i|iilal  sliall  Itc  used  t(»  nii|i|(iy  lalioi. 
This  (Iflciinincs  the    simi    total    th.it    (  ,111    lie    divulcd    atnon^j 

l.lhoMIS.  Thusr    who     Indk    tMl.lhol's     |)l()(hl(t     .IS     tlu'     SOIIKC, 

l.iy  stress  ii|miii  I.iIxh's  cfliriciH  y  01  produi  t ivity  .is  »  hirlly 
("ixiiij;  the  (|iiaiitit)'.  line  tlic  cli mnil  <il  tunc  is  iiiipoil.int, 
(01  in  shoit  |icni)ils  rdiiti.Hl  iii.iv  |tiiV(iil  .m  .i(liiistiiiriit  to 
(  nil  i(  in  v  /\  pcilcct  (  oiiipctitioii  on  the  p, lit  ol  (apil.ihsts  is 
,il  .0  po.liil.il<  <l  III  okIci  th.it  intcK-st  may  he  lopt  at  a  niini- 
iiiiiiii  i.itc  .111(1  prevented  honi  ahsoiliinj;  the  share  ol  hihorers. 
'I  hose  wlio  look  to  men  liants'  c  .ipital  as  the  source  o(  real 
\v,i)^;es  make  the  \olniii'  ol  ihi  How  ol  (  onsiimahle  (;oo(ls  to 
Ial»oreis  (lepeinli  nt  upon  the  voliinie  ol  money  wa(.;es.  Sik  li 
\vaj;es  ,ire  in  r.eiiei.il  iipfiMlriil  upon  (  inployers'  uie.ins. 
Ileiuc  .1  rise  in  w.i^es,  otiiei  thiiif^s  liein^;  erjiial,  e.in  «)((:iir 
only  il  the  ilireetors  of  industry  are  alile  to  .idd  to  their  money 
resoiiKes  .ind  enlai;;e  their  iinderlakinivs.  I'nially,  those  who 
appe.il  to  the  iiKoiiie  ol  ( diisiimers  . '  st  their  ( ;ise  upon  the 
assumption  ol  a  more  or  less  d(  finite  proportion  hetween 
wai^M's  and  roiisiuiier  .'  iiu  ome.  This  is  ,ilso  the  point  of  view 
of  I  letniann  ;iiul  his  lollowers.  l'"oi  ( Dtiiphteness  there  ou}^;ht 
to  be  some  .ittempt  to  di  -tinjoiish  between  the  jiower  of  eon- 
sumption  ol  l.iborers  and  that  of  odier  tl,iss(?s,  and  the  extent 
to  whieli  l.iborers  .ire  the  consumers  of  their  own  products. 
On  tlu;  m()st  supeilKial  view,  it  must  .appear  that  I.il)orer.s  and 
their  families,  ( onstitutii^;  .is  they  do  a  considerable  propor- 
tion of  tin*  popul.ition,  are  l.irf^e  consumers  of  their  own  prf)- 
duets.  Just  in  so  far  as  this  is  true,  wa^'es  app<:ars  as  ,-i 
deteiminant  f)f  itself,  . and  thus  we  re.isoii  in  a  circle.  Iler- 
ni.inn  did  not  escape  this  kind  of  reasonin^f,  though  Hrentano 
did. 

III.  Writers  on  waj^es  have  not  always  distinpjuislicd  be- 
tween general  w.-i^^es  and  {;roup  wag(.'s.  Some  have  evolved  a 
theory    ex|)lanatory    of  the  waj^es  of  laborers  as  one  body 


i 


1 

tJ 

l"    l'. 

1     J 

hi  „■    •  1 

' 

.  ■    ';> 

1 

•  ( 

. 

.  ' 

':■'     ■' 

:-! 

i        I 

ifi'il  i 

^Wl 

'"''II 

Lid'  ■ 

06 


i;/:A\\/.i\  ir.K,/':  i iieokies 


[3f>3 


opjiosccl  to  all  other  classes.  They  iiave  cieterniined  certain 
principles  ap[)licable  to  the  larger  [iroblein,  and  then  have  i)r()- 
ceeiied  to  draw  certain  conclusit)ns  about  the  wages  of  {groups 
baseil  ii[)on  those  principles,  without  perceiving  the  change  ot 
problem.  ( )thers  have  pursueil  the  opposite  policy.  Having 
[lerhaps  correctly  observed  the  relation  ol  cause  and  effect  in 
the  case  of  wages  of  group.s,  the  principles  hu  evolved  are 
likewise  used  as  a  solution  of  the  other  problem,  which  is  so 
different.  Hermann  and  his  followers  seem  to  be  guilty  of 
this  last  error.  They  observed  that  intlividual  employers  enter 
w\w\\  industry  with  a  view  to  gain  profit,  that  they  regul.ite 
their  production  by  their  customers'  demands.  If  demand 
increases,  more  is  invested;  if  denuuKi  falls,  less  is  invested. 
This  increase  or  decrease  of  investment  carries  with  it  corre- 
sponding changes  in  the  amount  paid  in  wages.  As  individual 
employers  do,  all  do;  therefore  wages  depend  ultimately  upon 
consumers'  demand. 

\{  we  have  regard  to  a  single  industry,  it  seems  clear  that 
the  investment  of  capital  and  the  total  amount  paid  in  wages 
follow  closely  the  lead  of  consumers'  demand.  There  can 
be  little  question  but  that  it  is  effective  in  distributing  the 
relative  amounts  of  capital  over  the  whole  field  of  pro- 
duction. Production  is  for  no  other  purpose  than  to  meet 
tile  varying  demands  of  men,  and  capital  is  ever  on  the  alert 
t':  anticipate,  if  possible,  the  growing  and  changing  wants  of 
humanity.  There  is  thus  a  re-shifting  of  industry  and  employ- 
ment, and  wages  are  sensibly  affected,  at  least  for  short  periods. 
However,  even  here  it  can  scarcely  be  said  that  demand 
determines  the  amount  of  investment.  What  it  does  is  to 
influence  it  more  or  less.  These  matters  are  important  as 
throwing  light  on  the  determination  of  group  wages.  But  the 
problem  of  general  wages  is  a  different  one.  1  lere  \.e  view 
income  as  a  whole,  and  industry  as  a  total.  The  effectual 
demam.!  of  society  is  the  offer  of  total  income.  We  are  unable 
to  conceive  of  an  increase  or  decrease  of  demand  without  at 


t.    ii; 


tl  ccitaiii 
liivc  pro- 

)t   glDllpS 

lianj^fc  ol 
1  laviiiij' 
effect  in 
Ivcd  arc 
ich  is  .so 
,uiilty   of 
crs  Ciller 
icgul.ilc 
dcinand 
invested, 
it  coric- 
dividiial 
i\y  upon 


305] 


tViV/'/tV.SJ/ 


^'7 


the  same  time  conceiving,'  an  inciea.sc  or  decrease  of  i)roduc- 
tion.  Ill  the  view  of  I  lermann,  an  increa.sed  demand  is  viewed 
as  a  cause  of  which  increased  investment  and  increascil  pro- 
duction is  the  effect.  W'liile  viewing  total  demanil  and  total 
proihiction,  increased  production  must  ever  he  the  cause  of 
increased  demand.  We  see,  therefore,  how  unfitted  this  theory 
is  as  an  explanation  of  t,'eiieral  vva^'es,  although  it  may  throw 
light  on  paiticular  wages.' 

'  See  Cairnes,  /'oh/it  a/  I£eouomy,  aiicl  Taussig,  Wu^ws  mi  J  Calital. 


ear  that 
n  wages 
ere   can 
Ling  tlie 
of    pro- 
to  meet 
he  alert 
.vants  of 
i-mploy- 
periods. 
deniand 
-•s  is  to 
■tant  as 
But  the 
i.'c  view 
•ffectual 
■  unable 
liout  at 


I'  .  i   ' 


':}'A 


■  -S:  y 


CHAPTER  IV 


B'     1 


VON    THUNEN 


.'I 
41 


JoHANN  Heinrich  VON  Thunen,  born  1783,  died  1850,  was 
a  Mecklenburg  aristocrat  who,  as  a  scientific  land  cultivator, 
endeavored  to  put  to  a  test,  on  his  own  property,  the 
theoretical  conclusions  of  his  economic  studies.  He  is  re- 
garded by  the  Germans  as  their  most  original  theoretical 
economist.  As  a  close  student  of  English  political  economy 
he  professed  to  have  little  confidence  in  its  conclusions;  yet  he 
did  not  succeed  in  emancipating  himself  from  either  the  char- 
acteristic method,  or  some  of  the  more  important  results  of  his 
English  preceptors.  There  runs  through  his  thinking  on  the 
subject  of  wages  the  fundamental  assumption  that  neither 
wages  nor  interest  can  rise  except  at  the  expense  of  the  other. 
They  are  supplied  from  a  fixed  amount,  and  whatever  causes 
a  rise  in  one  must  produce  a  corresponding  fall  in  the  other. 
He  proceeds,  as  Smith  anci  Ricardo,  did  by  assuming  simple 
primitive  conditions  or  hypothetical  cases.  His  method  is 
wholly  deductive  and  highly  abstract. 

Thiinen's  confidence  in  future  economic  peace  is  disturbed 
by  his  belief  that  the  laborer  is  separated  from  the  results  of 
his  productive  power.'  It  was  his  opinion  that,  so  long  as 
•^uch  a  state  of  things  lasts,  hostility  between  labor  and  capi- 
tal is  inevitable  and  not  without  justification.  Under  present 
arrangements  labor  does  not  get  all  it  produces,  but  there  is  no 
reason  in  justice  why  it  should  not.  It  is  not  enough  to  ask 
what  wages  are.     We  must  enquire  what  wages  ought  to  be. 

'  Der  holirte  Siaat,  ii,  p.  2IO. 

68  [364 


365] 


J -ox  77/(.-A'/-:.V 


6g 


Wages  are,  roughly  speaking,  determined  by  the  relation  of 
supply  and  demand,  and  under  this  influence  they  tend  to  the 
standard  of  life  minimum.     This  point  is  treated  in  a  most 
original  manner,  if  we  remember  that  it  was  written  in  the 
early  part  of  this  century.     Business  men  will  employ  addi- 
tional   laborers    up   to   the    point   at  which    the   last  laborer 
employed  produces  his  own  wages ;    beyond   that  they  can- 
not   go    without    loss ;    to    that    point    self-interest    prompts 
them  to  go.     Under  the  operation  of  competition  all  laborers 
of  like  grade  receive  the  same  wages  as    the  last  on>,  em- 
ployed.    If  at  this  point  all  are  miserable,  what  remedy    is 
ther'^  ?     The    undertaker   cannot   be   blamed,    for,   while    he 
ma)    make  a  surplus  from  the  earlier  laborers  employed,  to 
suppose  that  he  will  bestow  it  as  a  free  gift  to  his  laborers 
is  to  fail  to  distinguish  between   moral  obligations  and  busi- 
ness principles.     A  rise  in  wages  without  a  decrease  in  the 
number  of  laborers  employed  is  not  possible,  for  then  the  last 
employed  laborer  produces  less  than  his  wages.     Employers 
must  discharge  men  until  wages  equal  production.     On  the 
other  hand,  rather  than  remain  breadless,  discharged  men  are 
willing  to  work  at  a  figure  which   makes  their  employment 
possible.     If  we  suppose  an  increase  in  the  number  of  laborers 
without  a  corresponding  increase  of  capital  and  land,  wages 
'Tiust  fall,  for  the  undertaker  can  employ  additional  labor  only 
on  less  productive  objects.     If  laborers  increase,  in  spite  of 
sinking  wages,  the  only  limit  to  population  is  the  means  of  sub- 
sistence.    How  productive  the  object  is  upon  which  the  last 
laborer  is  emploj'ed  depends  upon  the  supply  of  labor.     The 
greater  the  supply  of  labor,  the  less  productive  will  the  capital 
be  upon  which  the  last  laborer  employed  works.     To  what 
limit  wages  may  sink  depends  upon  the  sum  of  the  means  of 
subsistence.     Between  the  real  worth  of  labor,  the  supply  of 
labor,  and  the  means  of  subsistence  of  labor  there  is  an  inti- 
mate connection.     The  economists  have  considered  the  last 
two  factors  only,  and  have  thereby  drawn  the  conclusion  that 


70 


GERMAN  WAGE   THEORIES 


[366 


i    i 


1, •■'■;!'    ' 


I' 


Providence  has  designed  for  laborers  nothing  except  necessary- 
support  during  the  period  of  their  hfe.'  Such  a  conclusion  can 
not  be  admitted,  and  will  be  found  to  be  scientifically  unten- 
able when  we  have  investigated  the  real  worth  of  labor. 

Von  Thiinen  complained  that  Adam  Smith's  law  of  the  rela- 
tion of  supply  and  demand  as  determining  wages  was  dependent 
upon  changes  in  the  national  wealth.  He  desired  to  discover  a 
law  of  wages  for  a  persistent  condition  of  society.  In  such  a 
condition,  demand  and  supply  are  in  equilibrium  ;  each  cancels 
the  other.  Since  they  appear  to  be  inactive,  there  must  be  .^omc 
other  law.  To  the  question,  what  is  the  natural  share  of  the 
laborer  in  products  brought  forth  by  him,  Adam  Smith 
answers,  that  which  he  usually  gets.  But  that  which  he 
usually  gets  through  competition  is  subject  to  continual 
change.  We  must  ask  which  one  of  all  those  actually  received 
is  the  right  one,  the  natural  one.  Adam  Smith  did  not  investi- 
gate this  question.^ 

If  we  compare  von  Thiinen's  conception  of  natural  wages 
with  that  of  Ricardo's,  we  find  them  quite  different.     Ricardo 
was  the  analyst  of  actual   economic  facts.     In  the  realm  of 
distribution  he  sought  to  establish  no  reform.     Hence  he  of- 
fered no  criticisms  of  the  social  method  of  awarding  shares. 
To  his  mind  the  essential  task  at  that  time  was  to  establish,  if 
possible,  beyond  all  question,  what  the  social  method  actually 
was.     He  found  it  convenient  to  adopt  Adam  Smith's  distinc- 
tion between  wages  which  fluctuate  in  short  periods  accord- 
ing to  the  varying  strength  of  demand  fv.r  labor,  and  wages 
which  prevail  in  the  long  run  and  are  connected  with  the  de- 
crease or  increase  of  population.     Ricardo  called  wages  nat- 
ural which  enabled  laborers  under  the  influence  of  climate  and 
habit  to  perpetuate  their  kind  without  increase  or  diminution. 
Von  Thiinen's  interest  in  economic   questions  was  different. 


1  Der  holirte  Slant,  ii,  p.  86-90. 
■•■  Der  holirte  Siaut,  ii,  p.  64. 


[366 

iccessary 
jsion  can 
y  untcn- 
)r. 

the  rela- 
^pendent 
iscover  a 
n  such  a 
1  cancels 
be  >onK 
'e  of  llic 
1  Smith 
hich  he 
:ontinual 
received 
t  investi- 

il  wages 
Ricardo 
reahii  of 
:e  he  of- 
;■  shares, 
ablish,  if 
actual  Ij- 
distinc- 
accord- 
d  wages 
the  de- 
nes nat- 
late  and 
u'nution. 
Jifferent. 


367]  J'OX  77 /iXEX  ^i 

He  was  not  less  keenly  alive  than  Ricardo  to  the  importance 
of  a  theoretical  statement  of  actual  distribution,  and  in  this 
field  he  achieved  probably  as  notable  success.  ]kit  he  brooded 
over  the  miseries  of  the  poor,  and  sought  for  the  causes  in  the 
national  economic  system.  To  him  a  wage  whicli  was  divorced 
from  correspondence  witli  production  was  unjust  and  unnat- 
ural. In  a  word,  he  called  wages  natural  when  they  were  in 
agreement  with  justice  ;  and  justice  required  that  a  man  should 
be  rewarded  according  to  his  production.  But  in  seeking  the 
law  of  wages  the  interests  of  both  capitalists  and  laborers 
must  be  taken  into  account. 

To  eliminate  the  complicating  effect  of  rent,  von  Thiinen 
seized  upon  the  idea  of  the  isolated  community.  He  su[)poses 
a  large  city  situated  in  the  centre  of  a  fruitful  plain.  To 
eliminate  unnecessary  causes  of  unequal  opportunity,  lie  sup- 
poses the  plain  not  crossed  by  river  or  canal.  At  a  consider- 
able distance  from  the  city  the  plain  ends  in  a  wilderness  which 
wholly  separates  the  supposed  state  from  the  rest  of  the  world. 
All  laborers  are  equall>-  strong,  wise  and  skillful.  The  num- 
ber of  laborers  remains  the  same,  /.  c,  there  are  just  enough 
children  brought  to  maturity  to  fill  the  ranks  depleted  by  age 
and  death.  The  population  is  also  so  limited  that  plenty  of 
land  awaits  occupation.  Hence  there  is  a  border  where  no 
rent  is  paid,  for  rather  than  pay  rent  the  Bauer  would  take  new 
land.  Conditions  on  the  border  determine  for  the  entire  com- 
munit}'  what  wages  shall  be  paid,  for  there  wages  are  not 
determined  by  the  will  of  the  employer,  the  competition  of 
laborers,  or  the  means  of  subsistence,  but  by  what  ihe  laborer 
can  himself  produce.  Such  wages  are  paid  throughout  the 
entire  community  by  the  force  of  competition.  Conditions  on 
the  border  also  determine  interest,  since  there  capital  has  its 
highest  uses,  and  being  highly  volatile,  it  finds  the  place  of 
highest  reward.  Von  Thunen  was  careful  to  credit  as  much 
to  interest  as  belonged  lo  it.  Not  all  that  falls  into  laborers' 
hands,  ostensibly  as  wages,  is  properly  to  be   considered  as 


/•^ 


i.F.KMAX   ir.li,/-:    /7//-('A7/;\ 


[368 


^>'' 


such.  Ncaily  iill  workmoii  arc  rmnishcil  will)  (•(|tiipin(Mit  of 
one  soil  and  anotluT,  such  as  implfiiu'nts  or  tools  to  assist 
tluMU  ill  lal)oi,  .111(1  a  part  ol  what  thi"\'  rcicixc  1  .  to  he  ,u- 
CKiliti'vl  to  iiitcii'st  for  tlu-ir  usi-. 

Ill  oilier  that  labor  may  not  he  at  the  ntcn\- of  comix'tilioii, 
hi"  supposi-s  roiulitioiis  uiitlcr  whiih  lahor  ina\-  licfU-  appl\' 
itsi'Il  to  unorrupird  land.  .An  in\  csliij.ition  .is  to  how  liiidi 
w.uH's  111.1)'  he  iindi-r  thi'sc  i-oiiditions  will  tc.uh  lis  u  li.it 
ii.itui.il  \\.ii;rs  .111",  loi  hrii"  the  Ial)oirr  will  I'cl  wh.it  I)il(iii;;s 
to  him.  rii("  tot.il  piodiut  is  di\  idrd  Ix-twrni  two  ilaimaiils: 
l.ihoicis  .iiid  iMpit.ilists.  it  will  111"  ioiiiid  that  thr  mlcustsof 
both  .lie  best  siibsei\ed  when  the  so  i.illed  n.itui.il  wa^us  .ne 
p.iid.  The  pioblem,  then,  is  to  deleiiiuiie  the  lelatioii  ol  the 
r.ite  ot  w.i;;es  to  tlu"  i.ite  ol  uiteiesi.  This  \/'t>n  I  lumen  ,it- 
ti"mp(s  ti>  do  b\'  rediiein;;  the  eirieieiiey  lA  eapit.il  to  l.iixn- 
ti'iiiis.  It  iiuoUes  till"  most  din"ieult  problem  of  delei  luiniii'/ 
the  sli.ues  .itti  ibut.ible  to  l.ibor  .iiid  e.ipit.il  out  of  apiodiat 
wliieli  is  the  result  ot  tlu"  two  ill  eo  opei  ,it  ioii.  Iu-Iok  entei- 
iii;;  U[H>ii  this  diseussion.  it  will  be  peril. ips  best  to  i;ive  soiiu' 
expl.iii.ilion  ot  the  m.vtlu"iii.itie.il  terms  eniplo\-i"d. 

.  /  represents  the  w.u;i"s  \'o\-  the  }'e.ir  i)l  a  l.imilx",  iiuliidiii^ 
till"  wile  .md  \ouiil;  ehildien  under  I'ouiteeii  \'e.irs  old.  rhes(; 
w.ilh's  .ue  e\i>ressed  in  bushels  iA  r\e.  To  deteimino 
hmv  unuli  sueh  .1  lamil\-  would  eiMisume  woiihl  maiiifestiv 
depend  upon  the  luimbei  ol  ehi'dicii.  In  this  iiu'estij^at ion  it 
is  von  riuinen's  .11111  to  Imd  .1  l.;w  lor  the  leiMil.itioii  of  wmlms 
and  Lite  ot  mteiest  \o\  the  station. ii)'  st.ite  ol  soeiet)-;  Ik  nee 
the  workiiu;  popul.itioii  is  siij^posed  to  be  const. mt.  I'.aeh 
t.iiiiih'  will  theiefiue  on  the  a\ei.tLH"  sueeeed  in  raisini;'  a  sufli- 
ciei't  number  {i\  ihildren  to  repl.iee  tin"  losses  !iy  aL;i"  aiul 
ile.ith.  The  lueess.ines  ot  lile,  which  avc  reipiired  to  keep 
such  .111  .i\eia!.;e  l.uiiil\-  in  l.ibor  power  lor  .1  \'i"ar,  .ire  .issunieil 
to  be  such  wilue  .\s  is  cipi.il  to  the  \.ilue  o\  .1  bushel  ol  lyt". 
If  fioiii  the  {o{.\\  w.i;,u"s  ,/  the  necessaries  be  subtr.icled,  there 
will   be  a  surples   which   is  desi<;natcd  by  the  letter    v.     Then 


3^)8 


3(V] 


rox  riivNi-.N 


7i 


A  n  \  y.  That  ]);ut  of  tlir  ^moss  product  uliidi  is  left  after 
(lc-(lii(:tin{,'  repairs  of  all  sorts,  costs  of  raw  material,  and  adiniii- 
isliatioii,  as  well  as  jji-ofits  to  tile  undertaker  as  such,  is  called 
by  Ihiiiien  tlur  "product  of  labor."  '1  his  is  a  technical  ex- 
pression, as  t:vidently  the  product  is  tin;  joint  result  of  the  co- 
operation of  labor  and  capital.  If  vvi;  divide  the  pioduct  of 
labor  by  tin-  nuful)er  of  laborers  employed,  we  ^'et  the  amount 
of  tlu"  labor-product  of  one  man,  which  is  desij^nated  by  "/>." 
Wi;  now  tiuii  to  the  reduction  of  the  efficitMicy  of  capital  to 
labor-tiMius,  and  it  is  nect-ssary  to  follow  .nir  author  somewhat 
closely.  If  we  sup])ose  a  capital  Q  MuX  aw.w^v.  a  I  )' ex])resscd 
in  bushels  of  ryi;,  dollars,  oi-  any  other  measure  of  value,  and 
that  Q  be  divided  by  a  I  \\  we  have  as  a  result  an  expression 
for  capital  in  terms  of  the  year's  labor  of  a  family,  (  r  we  have 
discovered  1k)w  many  j-ears'  labor  of  a  family  a  (apitalist  with 
(J  capital  can  employ.'      If  this  labor  rpiantity   be  represented 

by  ;/r/,  then  mj,  and   Q       luj  [a  |  j-).      If  a-\-y  be  re- 

pjarded  as  (.(luivalent  to  a  unit  of  capital,  then  (2  tu/  units  of 
capital.  In  case  the  capitalist  lends  liis  capital  to  an  under- 
taker who  employs  n  laborers,  then  each  laborer  is  assisted  by 

c/  capital.     The  product  of  a  laborer  employed  with  a 

capital  (/  for  a  year  is  desi^Miated  by  "/>,"  />,  tlien,  is  a  joint 
product,  and  the  problem  is  to  find  an  equitable  division  be- 
tween the  laborer  and  capitalist.  If  ;/  laborers  are  employed, 
the  product  of  :;1I  I.iborers  is  up  ;  their  waj^'cs  are  n{n  \  y)\  the 
capitalist  has  the  difference  :  up  —  ;/  [a  -[  y)  n  (p  —  [c?  +y] ). 
The  capital  employed  is  //(/ (ti -\-y).     If  the  rate  of  intere.^'    'jc 

n{/'~[a+y\)     p  —  (n+y) 
m/{a+y)  (/{(i+y) 

laborer  s  share  can  now  be  expressed  in  terms  of  labor-product, 
rate  of  interest,  and  capital. 


designated  by  ,:r,  then  " 


The 


^Dcr  holirte  Staat,  ii,  p.  124. 


fel 


■li 


74 


iMom  ,:; 


(,7-7>'.i/./.\-  /;•./(,•/■  rill  A' Nils 


is  oht.imril  (j.-id  !    r)       /*  —  ('' 


n   \-  V 


s  sh, 


\\v. 


t 


cai)itali.st's  sliaic. 


liom  this  is  obtained  \\\v  tdllmviiii', : 

(I    I-  (/,:;)  (,'/   !    I')       /',•   wlu-iic 

/' 

>    I   '/■ 
1  Ik"  <  (if'italisf s  shore  is  loiiiul  l)\'  subliaclin;';  the  laborer's  sliaic 

IVoiii  (lu-  piodiiet  of  labor: 

r       p  i  /•'/•--/'      /•<'/■■) 

I    I   <}:■  1  -I-  y:.  I    I   y.: 

I'loin  the  abovi-  it  appiars  th.it  the-  ii'lalioii  ol  the  laborer's 
share  to  that  of  the  capitalist  is  as  i  :  yv.  This  relation  ma}'  i)e 
\'.irioiisly  expressed:  Tlu"  rew.ird  of  (j  units  ol  eajjital  ecpials 
the  wat^i's  ofy,..  laborers,  ami  the  leward  ol  one  unit  of  capital  is 
ccpial  to  the  \vai;cs  of,:.  labortMs,  or  as  is  subseipieiilly  rctiiiired 
in  the  discussion  :  The  \vaL;c\s  oroiu-  },'ear's  labor  arc  to  ihi;  eain- 
iiii^s  ofy  units  oi"caj)ital  as  i  is  to  y  •.  <"'  the  waives  of  oiu-  year's 
labor  arc  to  the  carninj^s  of  one  unit  ol  capital  as  i   is  to  .v. 

\'oii  Thiinen  has  now  succeeded  in  findini;  a  niatlu-niatical 
expression  tor  the  relation  of  tin-  reward  of  capital  and  labor. 
lie  must  proct-cil  one  sU'p  turlhei-  to  express  the  relation  ol 
tlieir  ell'iciencies.  Siiu c  in  the  production  of  one  and  the  same 
product  /•,  a  part  of  the  c;;pital  nia\'  be  replaced  by  labor  and 
<".'(■(•  luisii,  it  ap])i'ars  thai  each  is  a  ciMiipetitor  ot  the  other. 
It  is  therelori-  in  the  power  of  the  undi'itaki-r  who  with  (^ 
capital  hire's,  sa\-  //  laborers,  to  L;i\'e  .uiy  desinible  value  to  ./ 
b\'  incri-asi"  or  dccre.ise  ('I'i  \\\v  nunibi-r  of  laborers.  The 
undertaker  wlio  knows  ;inel  I'oIUmns  his  interest  will  raise  y  to 
the  point  wliere-  capital-cost  and  labor-cost  are  in  direct  re'Iatioii 
to  the  (.  flicienc}'  ol  both.  1  lence  the  lewaid  of  both  cajiilal  and 
labeir  is  measured  b\-  tin-  efllciency  of  each.'  If  the  reward  of 
labor  is  to  the  reward  oS.  cajiital  as  i  is  to  .:.,  and  the  efficieMic)-  of 
labor  is  to  the  enkicncy  of  capital  as  the  reward  of  labor  is  to 


^Dcr  holirte  S,'a<i.',  ii,  ji.  126. 


^71 1  lo^y  iiiiM'x  75 

the  icw.ird  of  c;t])it;il,  linn  tlic  cnk-iciicy  ofl.-ihor  is  to  the  tffi- 
cic'iicy  of  cipit.'il  ;is  1  is  to...  \Vc  ;inivc,  then,  ,it  tlic  |oll()vvin|.f 
vi'iy  important  conclusion  :  WIkmi  (■,i])ital  and  liiinian  labor  arc 
inca.snrcd  by  the  .sainr  rule,  viz.,  the  )'car'.s  labor  of  an  individ- 
ual man,  the  rate  ol  interest,",.,"  is  the  factor  b\'  which  the 
relation  of  the  efficienc)'  of  (:a|)ital  and  that  ol  '  ibor  is  ex- 
pressed. \\y  this  we  can  reduce  to  labor  terms  the  co-oper,ition 
of  capital  in  the  production  ol  ^;oo(Is.  I'ln  thei  more,  in  so  (ar 
as  land  I'ent  does  not  enter,  it  is  po.ssible  i)y  this  to  express  in 
terms  of  labor  the  cost  of  production  o(  a  coimuodit)',  and 
therc:by  labor  becomes  a  true  measure  ol  the-  value  of  floods.' 
'Ww  place  which  the;  "  reduction  ol  the  efdciency  of  capital  to 
labor-terms"  has  in  the  ^u-neral  discussion  will  be  more  clearly 
.seen  later  on.  Von  'riiiinen  has  to  exercise  constant  care  that 
at  eveiy  step  in  the  piocess  no  unknown  term  shall  l)e  allowed 
to  do  duty  for  known  oni:s.  lie  started  out  to  obtain  an  ex- 
j>ression  lor  natural  wa;;es.  lie  has  obtained  an  ex|)ression  for 
wages  under  existing  conditions  with  \\hit:h  he  cannot  rest,  for 
it  contains  too   many   unknown  (piantities.      In  the  expression 

'  ,         tJK,' value  of  c^ -I    I' is  dei)endent   upon   the  viiluc 

I    i    (JZ  '  ' 

of  ,C',  so  that  to  i;et  the  value  of  c?  \  y  we  must  know  tiie  value 

ol  ,:.'.      Now  p   is   not   constant,  but   incieases  and    dimiiuslus 

with  tln"  value  ol  q  and  is  therefore  dependent  U|)on  it.      Upon 

the   value  of/'  depends   ajjjain   the   value  of  j' and   rj.     There- 

foie  />,  y  and  .:.   are    functions  of    y.      The    problem    therefore 

is  to  find  the  value  ol  /',  j'  and  ,:.'  for  a  j.n'ven   value  of  «/.''     Jie 

then   turns  to  liis   favorite  h)pothetical    societ}'   in   para<na[)h 

I4,  in  which    lie  says   tliat   it    is  on  the   mart^in  f»f  cultivation 

of    the    isolated     state    that    we    are    to    find    the    conditions 

for  the  development  of  tlur  relation  between  waives  ,'uid  the    ate 

of  interest.'     Here  it  is  possiljle  to  be  free  from  tiie  confusion 


a 


'  Ih-r  holirle  Slant,  ii,  ]i.  127. 
'  lliid.,  p.   140. 


'  Ihid.,  p.  139. 


76 


GERMAN  WAGE   IJ/EOK/ES 


[372 


iLi' 


due  to  the  presence  of  land  rent.  Here  laborers  are  free  to 
choose  whether  they  will  continue  as  wage  laborers  or  move  to 
unoccupied  land  and  lay  out  a  property  of  their  own.  If 
laborers  are  to  be  kept  as  farm  hands,  their  total  income,  made 
up  of  wages  and  interest  upon  capital  required  to  lay  out  a 
farm,  must  equal  the  product  of  labor  procurable  from  a  marginal 
farm  which  they  might  themselves  have  laid  out."'  Von  Thiinen 
expresses  this  mathematically.  If  wages  — ^2: +j',  product  of 
labor—/' and  the  capital  required  to  lay  out  a  small  farm=: 
</(rt+j) — all  expressed  in  bushels  of  rye — and  the  rate  of  in- 
terest —  z  per  cent.,  then  that  laborers  may  be  retained  the 
following   equation  must   hold:  a+ y  +  q{a+y)::=^p.     From 

this  results:  «  +  !'=      .        ;  and  s~^    ,     .     J.     In    this  ex- 

1+  (]s  q{a  -\-y) 

pression  under  the  conditions  assumed  a,  p  and  q  are  constant 
quantities,  only  y  and  s  being  variable.  It  is  of  the  first  im- 
portance to  find  the  exact  relation  between  y  and  z,  for  upon 
that  solution  depends  a  knowledge  of  the  relation  between 
wages  and  interest.'^  He  then  undertakes  to  find  an  expression 
iox y  which  does  not  contain  the  quantity  for  z. 

He  supposes  that  a  number  of  laborers  form  a  combination 
on  the  margin  of  cultivation  of  the  isolated  state  to  put  into 
cultivation  a  new  farm.  That  there  may  be  no  disadvantage 
attached  to  this  farm  on  account  of  its  size,  it  is  supposed  to 
be  as  large  as  the  average  in  the  state.  The  laborers  united 
for  this  purpose  divide  themselves  into  two  groups.  Group  I 
is  busied  preparing  the  land  for  cultivation,  erecting  buildings, 
etc.  Group  II  is  composed  of  men  who  for  the  time  being 
remain  as  laborers  for  hire,  and  by  means  of  the  surplus  which 
they  have  above  that  required  for  their  own  support,  offer  the 
means  of  support  of  Group  I.  Under  these  conditions,  says 
von  Thiinen,  in  the  preparation  of  the  farm,  none  of  the 
existing    national    capital    is   consumed.     The  sum  of  those 


'  Der  liolirte  Staat,  ii,  p.  141. 


^Jbi(f.,  p.  142. 


[37: 


373] 


VON  TIIUNEN 


77 


IS  ex- 


objects  of  value  after  completing  the  farm  is  as  great  as  be- 
fore its  completion.     The  new  farm  has  cost  labor,  and  noth- 
ing but  labor.'     These  two  groups  of  laborers    have  really 
devoted    their   surplus  to  the   production   of  this    farm,  and 
the   farm    may  be    spoken    of  as    their    invested  capital,  the 
interest  of  which    must    come  from    the   future    products    of 
the    farm.      Groups    I    and    II    are     called    throughout   von 
Thijnen's  discussion  "  capital  producing  laborers."     Now  the 
question  occurs,  how  shall  the  wages  of  farm  hands  be  de- 
termined?    Von  Thiinen  answers  that  it  must  be  sufficiently 
high  so  that  the  surplus  of  a  laborer  put  out  at  interest  will 
equal  the  interest  of  a  "capital  producing  laborer;"  for  if  this 
were  not  the  case  the  laborers  would  immediately  go  to  capi- 
tal producing.     It  is  the  interest  of  each,  both  laborers  and 
capitalists,  to  get  as  high  a  return  as  possible,  but  there  is  no 
opposition  between  the  two  classes.     In  economic  life,  as  we 
know  it,  if  efficiency  is  not  affected  by  changes  in  wages,  capi- 
talists' interests  are  promoted  by  lowering  wages;  but,   under 
the  simple  conditions  which  von  Thiinen  supposes,  this  does 
not  follov/.     As  will  be  more  clearly  seen  later  on,  the  follow- 
ing question  is  to  the  point:  what  rate  of  wages  can  capitalists 
pay  and  craw  the  highest  rate  of  interest,  supposing  the  cffi- 
""  ncy  is  not  considered,  and  that  capitalists  were  to  have  the 
same  rate  of  wages  when  they  were  producing  capital  ?     To 
show  what  he  means  by  this  question,  and  also  as  an  aid  in  the 
solution  of  the  same,  it  will  be  necessary  to  recur  once  more 
to  his  use  of  mathematical  symbols.     7i  represents  the  number 
of  labor  families  whose  continuous  labor  is  required  to  culti- 
vate the  farm  after  its  preparation,     nq  represents  the  number 
of  laborers  in  Group  I.     In  this  expression  is  included  the  co- 
operation of  capital."     A  laborer  employed  with  q  capital  pro- 
duces />,  and  the  product  of  n  laborers  equals  np.     Group  I 
has  in  the  course  of  the  year  consumed  anq  bushels  of  rye. 


^  Der  holirte  Staat,  ii,  p.  151. 


*  Ibid.,  ii,  p.  152, 


F'* 


,  1 

(    i 

1 
>       t 

i 

i     ' 

u, 


-.S  <;/:A\)/.t.v  If  Id/-  /■///■■(>Av/;.v  r"?".! 

Since  (iioup  II  ikxiiti's  its  .sim|)Iiis  tt»  the  siippmi  ol  (ii(>ii|i  I 
then'  .111-  as  m.in\'  l.ihours  in  (iuiii|i  II  as  llir  niiniiui  df 
liiiH's  lii.it  I',  tlir  surplus  ol   caiii  man,  is  lont.nnid    ui  </>/(/,  tlic 

II  I  '"'''/  Ml  I  , 

amount    ionsunu\l,   iu'iicc   tlu-    cxpii-ssion  .      1  lu'    wliolc 

mnnl)i'i-  of  "  lapital   producinf;  lahorcis"  then   is //</  I  '' 

;/./         ■  .       riu"  cnli.f   w.i^f   cxpi-nsc    lor    laiin    i:ulti\ation    is 

>/ [(I  i  r).  \\  wo  subtract  this  oulla)-  iVotn  the  total  product  ///< 
uc  h.u-c  y//'      //((/   I    r)       //(/<      \(i   I    r|).      It  is  the  Nearly  pro- 

duel  ol  the  larm,  uhiili  l)i"loni;s  to  //</  and    is  their  pioht, 

ov  interest  ou  the  eapit.il  iiucsled,  \\>  find  t  ;u  li  m.ni's  share 
we   onl\'    lU'ed    to    di\  ide   the-    larm    profit    by   tlu-    niiinlK-r  <>l 

-n        ,  '/(/'      I"  '    I'D       '/(/^      \"  '    ''1)1'  I 

owners.         I  iieic-loie        ^'        '         •    v..-     '        '        •    '•     eciuals 

<r  I    I'  //</(ii  ■^    y) 

'"'  ,■ 

each  man's  share. 

The  cpiestion  next  occurs:  how  is  the  share  of  each  "capital- 
prtnlncin-;  laborei  "  allectetl  b)-  changes  in  the  rate  ol  \va|^Hs? 
It  is  here  assumed  that  the  re(|uirenients  ol  lile,  "</,"  remain 
the  same,  and  that  any  chan^i-  in  wa-.u's  affects  r,  the  surjilus 
oidy.  It  will  be  sicn  '  that  chan<:;es  in  y  result  in  contiruy 
effects  upon  iMch  capital  proilucei's  share.  I'irst,  an  increase 
or  (U'crease  ol  i'  is  iciuivaa  nt  tt)  an  increase  or  decrease  in  the 
cost  of  the  cultivation  ol  the  farm.  So  iar  an  increase  ol  r 
works  to  tlie  detriment  of  each  man's  share,  and  a  decrease  of 
r  works  in  fivor  of  each  man's  share.  Second,  on  the  other 
hand,  an  inspection  of  the  expression  for  droup  I  reveals  the 
lact  that  an  increase  of  /'  results  in  a  decrease  of  the  number  of 
owners,  with  a  resultin<4  increase  in  each  man's  share.  Tlie 
decrease  of  y  _<;ives  a  contrary  result.  Hence  chan<;es  in  j 
work  double  and  opposite  results.     It  follows  that  there  must 

'  See  table  lieiow,  p.  79. 


n  -. 


.V' 


375 


/■*'.\-   ////  -W'.V 


79 


l)c  ;i  lixi  tl  .iiiioiinl  l«i|-  till  I,iIm/i  .m|ilii.  at  uliicli  \\n:  piollt 
sliarc  icaclu'-  its  iiia\iiiiiiiii  .iim  miiiI  Vdii  'I  liiinni  sliovvs  hy 
iiualis  (»l  tilt  Idllovvin}.',  talili:  Ik  u  tlic  pK'iiKt  ]<  ( >  c  hciii}^ 
llnaliiHtrd,  till'  \vaj.;i-s  iiicicasiii;.;-  -  the  piotit  sliati  r.  affrclL'il, 
suppo.sin}^  the  mmihri  i>i  lahoK  is  to  ninaiii  a  <  (instant : 


(  jpiljl  in 

(  jpil.il  ill 

Slim  nf  liilmr 

Where 

(  ilcillp  1 1 

(IriiHli  1   iclIlK  r<l 

ill  (irnllll!! 

1  .111,1  II. 

liilvrcsl  oil 

A  Finnic  ( iipil.ilist 

<J        \VI>, 

iiililicd  Id 

to  lalxir. 

f.iriii 

rci  oivis 

,1  ■  y 

l.ilxir 

"''    yc.ir's  l.ili'ir. 

1/  f"       /' 

iiivrsliiici.t. 

/-I"  •  y\  V 

ci|iial<i 

<l     111  y'rs  1, 

y 

y 

/-  a    y) 

q>a  <y) 

KXI    ■'    12 

12(1011   III) 

j'loc  1 1'jo  •  atilzo 

I'Jil  c 

Vi 

(i.i 

(in  1-  —  i2o(: 

'                     '            2.1C 

■iu 

211 

iBo  c 

I'^i  luu  1  20) 

1 o<  1     •      \  I 

150  c 

\'i 

50     ■'' 

I<T)     •'    12 

i'> 

1500 

4.IOC 

180  c 

TZ 

I  ( K 1    ■    12 

27 

120  c 

444  <■- 

31U  C 

12 

to.g 

HI) 

iwi   •12 

32.9 

<)o  r. 

3.r;i  c 

240  C 

12 

,„„          «•" 

20.  S7 

60  c 

1,91  C 

270  c 

\i 

•  )       12           , 
7.06 
170 

IDO       '    12       , 

ii;.f/) 

30  c 

1.57  c 

JOO  c 

12 

6 

■.!00 

18 

0 

0 

It  is  seen  Uiat  the  total  number  of  "capital  profJncing 
laborers  "  decreasis  with  the  increase  of  i'  becausi.- a  smaller 
number  of  (iroup  II  is  re([uirc(i  to  support  Grouf)  I.  We  see, 
too,  tliat  total  farm  profit  decreases  because  tiie  more  the 
laborers  take  from  a  constant  |)roduct,  the  less  is  the  remain- 
der. The  i^rofit  share  of  each  m.iti  increases  for  a  time,  but 
later  diminishes  till  finally  the  farm  laborers  ^^^t  all  that  is 
proiluced.  This  i,Mves  tlu'  conclusion  a^ain  that  there  must  be 
a  point  in  the  amount  of  w  ages  where  the  profit  share  is  the 
hi<^diest.     The  specific  questi(jn  is:  what  value  shall  y  have  in 

P  — '  (T'^  '  j'l) J' 

•der  that  the  profit  share  ^  ^  —  shall  have  its  maxi- 


01 


mum  value?     This  is  a  question  for  the  calculus.     Accord- 


•■  \ 


So 


"'i;'>' 


(,'/  A'M.ix  ir.u;/'   /7//:(>A'//:.s 


I,?;'' 


,/(,/ 1  i) 


llMI  .1    lie  (IlKi'lcHliatcd  with   icspiil  (n  y 


and  tlif  (lilliirnli.ilioii  pi. iced  <'t|iial  t<>  o. 

/')'    iiv  y')</((\'    () 


r'l'       )' 


,/(</  I   r) 

./((/  I  .1')  (/"     ''     ••I')''''' 
thi'irroiv  ((/  I   I')  {t~'<'      •''' 
a/>  —  a'—  2in  I  /;('     ^n'     .!)' 

tt/>  —  (i'     .hty    -21'*     —y 

y  I  j(/i'    d/'    </'' 

{,i-\y)'      np 
o  I   I'      \  ap 

l'",xi)U".ssrd  in  uoids  this  means  tli.il  it  is  in  the  interest  of 
capitalists  that  waj^cs  he  c(|iial  to  the  sijuare  root  of  the  prod- 
iiet  t>rthe  necessaries  ol' hfe  and  the  |)r()duct  result  of  labor,  all 
expressed  in  some  common  im-asmi".  Sneh  a  wa}^e,  not 
di'termined  by  siippl)-  and  demaiul,  or  sprinj^in^^  liom  the 
necessities  ol  the  laborer,  but  (roin  the  liee  deleiniin.ilioii  ol 
the  laborer,  von   Thiinen  c.dls  natural  wa^es.' 

This  «liscussioii,  so  lar,  aims  to  show  that  it  is  in  the  interest 
of  the  "  capital  proilucing  laborers"  that  wa^es  be  \  <ip.  IT  it 
can  be  shtiwn  that  laborers  themselves  receive  tin;  hijjhest 
amount  as  interest  upon  the  investment  ol'  their  surplus  when 
waives  ari'  t'^//',  the  claim  that  it  is  the  natural  waj;e  has  some 
reinlorcement.  He  proceeils  to  show  this  in  the  (ollowinj.^ 
manner  :  According;  to  a  former  expression  (see  p.  76)  (1   I  (jz) 

(</  I   r)     />,  whence  </ -I  J' --      ,        ,andr—      ,       —i^.     Were 

'        \-r  qz  '11  (]Z 

a  workman  to  loan  at  interest  his  surplus  j',  or  its  eciuivalent 
-        —(7,    hi.s   total    return    would   amount   to        ;       —<iz. 

I  +  (/Z  I   +  l]Z  - 

Now  wiiat  rate  of  interest  will  make  this  amount  the  lar^^est? 


'  Der  holirte  Stunt,  ii,  p.  157. 


\^7(> 


Were 


ar|j;c.st  ? 


277 


I  ox  iiirxi.x' 


81 


The  differential   ralciiliis  yields   for   "  the  value      "'       '' .      If 

h 

we   siihslifiite   this   value   of  ,r   in  tlie  eipiafion  n   I    v 


\\v.  have  a  \  y   " 


I    I 


a 


a 


V  tip. 


I   1  y,7  • 
I  fence 


'"I 

it  appears  that  when  a  laborer  receives  \^ itf>  waj.;es  he  receives 
tin;  hi^diest  return  f>n  his  .surplus  itwesled,  and  his  interest 
coincides  with  that  of  the  "  capital  pr()diicinf;  lahorers  "  when 
vva^es  are  at  that  fif^Mire.' 

The  critics  of  von  'riiiinen  may  \n-  roiif^dily  divided  into  two 
classes.  I''irst,  those  wlu)  deny  the  validity  of  the  formula 
because  of  the  unreality  of  the  assiinijjtions  upon  which  it  is 
based.  Secondly,  those  who  impeach  the  consistency  of  Ins 
mathematical  reasonin{^.  Tlur  second  class  is  nK)re  wcjrlhy  of 
attention,  because  a  math(;matical  criticisn)  reciuires  a  |)ro- 
founder  study  and  clearer  uiuh.rstandin^  of  the  author. 

Roscher  thinks  that  we  cannc^t  place  so  hij.;ii  a  value  upon 
the  law  as  von  'Ihiinen  does,  f(;r  it  could  hold  only  where  the 
severe  stru{:;f^le  between  ca[)ital  and  labor  does  not  exist.  In 
younj^  af^ricultural  colonies,  where  fruitful  soil  exists  in  super- 
fluity, where  every  laborer  can  save  a  surplus,  where  there  are 
no  capitalists  in  the  narrow  sense,  and  all  the  laborers  are 
nearly  alike,  and,  furthermore,  colonies  where  perhaps  no  in- 
dustry exists  that  requires  large  capital  or  superior  labor, 
there  a  wage  of  V ap  might  be  natural.'  Schafflc  takes  a 
similar  position  when  he  says  that  the  law  is  valid  only  for  a 
hypothetical  economy.  It  presupposes  an  unciianging  tech- 
nique, a  mere  replacement  of  the  number  of  laborers,  a  constant 
price  for  grain,  and  other  fictions  which  suppose  variable 
amounts  for  constant.     Kspecially  does  he  regard  the  hypothe- 

'  Der  Isolirie  Staat,  ii,  p.  i6o. 

*Geschic/ite  der  National'dkonomik  in  DeutichlanJ,  p.  896. 


82 


GKKMAX  ll'.iGE    TlfF.ORlES 


Vn^ 


m. 


'■UrJ^   '. 


.•-■is  of  a  constant  number  of  laborers  as  in  reality  no  basis  for 
natural  wages.'  Likewise  I  .ehr  objects  that  in  the  formula  the 
number  of  laborers  who  compete  with  each  other  and  press 
clown  wages  pla}  s  no  part.  lUit  {p)  the  product  will  be 
affected  by  the  "umber  of  laborers.  With  a  growing  popula- 
tion the  amount  of  land  not  yet  occupied  becomes  continually 
smaller  and  less  productive.  Under  a  given  condition  of 
technique,  the  transference  to  more  intensive  operations  yields 
to  the  last  laborer  less  and  less.  The  more/  ajiproaches  a  in 
amount,  the  more  does  the  formula  lose  its  significance.  If 
p  =  ci,  then  the  laborer  can  lay  up  nothing. 

Objections  as  given  above  are  shared  by  many  other  writers, 
as  Leymarie,  Mangoldt  and  Mithoff.  Dr.  Joh.  von  Konior- 
zinski'  has  more  rcctMitly  and  in  greater  detail  pointed  out  one 
of  von  Thiineii's  limited  assumptions  which  is  worth  noting  by 
itself  Von  Thiincn  had  argued  that  it  was  for  the  interest  of 
the  laborer  that  his  wages  should  be  at  such  a  point  that  the 
interest  upon  the  investment  of  his  surplus  be  as  high  as 
possible.  This  Komorzinski  clearly  points  out  would  not  be 
true  for  all  laborers.  The  laborer  has  two  sources  of  income: 
wages,  and  interest  o.i  savings.  lie  desires  that  with  a  given 
effort  the  total  income  be  as  large  as  possible.  The  relative 
importance  to  the  laborer  of  wages  -xwA  interest  on  savings  de- 
pends upon  the  quantitative  relation  whidi  each  has  to  the 
whole  income.  A  laborer  who  ij  just  beginning  to  save  de- 
sires that  his  wage  be  as  high  as  possible.  The  rate  of  interest 
upon  his  small  investment  is  a  r'.:latively  unimportant  matter 
to  him  ;  while  tiie  laborer  who  has  saved  much  during  a  long 
period  may  regard  the  amount  of  his  wage  as  a  matter  of  com- 
pare, tive  indifference.  His  chief  source  of  income  being  interest 
upon  invested  surplus,  he  is  led  to  desire  a  maximum  rate.    If 


^Das  Gesellscfuiftliche  System  d<r  Afensc/ilir/ten   Wirihschaft,  1873,  p.  44c. 

^Zeitschrift   iir  V'olksivirthschaft,  Socialpolitik  uttd  Verwaltutig,  15.  iii,  Heft 
i,  p.  27-62. 


379] 


VOA'  TIILNEN 


«3 


;,  p.  44c. 
iii,  Heft 


von   Thiinen's   argument   is   to  be  valiil,  laboicrs   must   liavc 
saved  an  cciual  length  of  time  and  an  e(iual  amount. 

These  (jbjections  are  for  tlie  most  part  onl)-  ri'[)etitions  of  von 
Thiinen's  stated  assumptions,  and  we  cannot  suppose  that  he 


is  taken  unawares.      Ricardo  assumes  for  the  economic  wor 


Id 


at  huge  conditions  which  were  famihar  to  In'm  on  tlie  stock 
exchange,  and  upon  these  he  developed  principles  of  rent  that 
niiglit  have  been  more  accurately  develoi)ed  if  lie  li.'.tl  been 
more  familiar  witli  farm  economy.  Subse(iuent  thnikers  liavc 
li.id  to  make  the  necessary  corrections.  Ricardo's  assumptions 
were  not  so  violent  as  to  belie  his  observations,  for  he  really 
thought  liis  assumptions,  in  general,  were  true.  Tliis  cannot 
be  said  of  von  Thiinen.  lie  did  not  attempt  to  develop  princi- 
ples of  banking  investment  based  upon  farming  e.Kperiencc. 
Had  Ricardo  written  on  the  exchange  he  would  have  traversed 
paths  familiar  to  liim.  When  von  Thiinen  wrote  on  farming  he 
wrote  accurately.  He  was  a  practical  farmer,  as  well  as  a 
scientific  thinker.  The  world  of  his  assumj)tions  and  that  of 
reahty  arc  too  far  removed  from  each  other  for  us  to  sujjpcjse 
him  ignorant  of  the  radical  difference  between  tiiem.  I  le  is  con- 
stantly drawing  contrasts  between  reality  and  tlie  isolated 
state.  He  has  a  different  law  of  wages  and  of  interest  for  each. 
How  shall  we  explain  his  confidence  in  a  law  based  upon 
conditions  so  far  removed  from  the  real  world  and  so  lacking 
in  completeness  ?  Only  on  tlie  assumption  that  he  regarded 
present  conditions  as  unnatural,  and  the  wage  of  the  present 
order  as  an  unnatural  wage.  He  said  that  the  present  regime 
was  likely  to  result  in  the  starvati^  and  misery  of  the  labor- 
ing classes.  The  present  .system  must  therefore  lack  equity. 
He  professed  to  have  investigated  the  relation  of  wages  and 
interest  from  several  standpoints,  and  to  have  found  that,  when 
wages  were  at  \' op,  they  agreed  with  the  nature  of  man,  and 
of  the  physical  world.'     He  regarded  his  formula  as  a  foot- 


'  Der  holirte  Staat,  ii,  p.  206. 


p.  I 


11 


H., 


(//•/<•  1/  /  \    ;;  !(:/■    ////■  (V.VA  v 


•,;;.! 


1  iilc  In-  \\  liii  li  ti<  jmlj'r  wliiil),  I  ;|  \v,i(;r  wi  ic  ;il  (till'-  ii.ilin.il 
;(l1il  I  i[;llli  Miiv  It  \\,i:,  )  lin  I  |n|  (■_  |<i  cviims';  ;i  i  i  itidlt  I' ill  IJi.il 
IM  hi.  npiriiMn  ont'hl  In  i  sr-l,  ;i  |;'>;il  ulm  li  I.iIihk  is  (iii[;|il  In 
'.tlUi  (ill,, mil  I'Mc  lll.il  I  in|»li>\  (  I ';  Mill  .iHi.|\'  '.|iiilll<l  li>  In 
l,»I>i>l     l«>    I  (Ml  li 

W'r  i.>niii>l  ImiI  .iilniiH'  llic  'iHiil  111  Villi  I  liiiiHii,  wliM,  m 
mcili  ilill!;  I>i  Iwri  n  llic  isln  incs  nl  tlic  jkIIickiiI';  nl  llir  "  timi 
l.wv  "  ,uiil  lIioM'  111  llir  Sill  i;ilis|s,  riii  li  ,i\  i  ii  c  1 1  (n  l,i\'  ;i  ';(  c  iililir 
I.MIHil.llinll   Inl    llir  i  IrVlllliMI   i '(    IIMIlKllliI  I  ll,l(     hr   iliiis  ni'di 

;\|c  IS  '.jinwii  l>\  .11'  iii'.|ii  I  Imn  nj  ihc  (nimiil.i  II  /•  \\r\r  I  i|n,i| 
111  ,;,  (hrn,  ;\i  (  HI  ilin};  In  tlir  ri|ii,ilii  m,  \v;I(m  s  wmild  ii|ii.il  iIk- 
iirt  css.n  i("'^  111  lili',  mill  w.ijMs  wmilil  .ilismli  llir  i  iiliir  |iiih|iii  |, 

Hut  w  ilh  \  I'M    I  Iniiirn. /■*  IS  ,il\v;n"- jMr.iIri  iImii  </   I    r.    W'.ijn  s 
then   Wi'iilii    III'  ,il'r\r  lllc  tUM  (ss.il  irs,  ImiI   IkIhW  IIh'  Inl.il    pin 
iliii  I        I\li''.|     iiii'M     nj;,uii    tins    as    jir.t        <  )iii     .ulinii.il  nm    ><\ 
ills  s|Mnl,  Iii'u  r\  ri .  niiisl  iml  lilind  ir-  (•'  f  lir  l.uills  nl  his  w m  K. 
,\  ni.iM  ui,i\'  li'\('  his  n<-i;;hl>oi,  and  nia\-  i;i\r  hiin  a  Iniiniila  li\' 

ihr   ir,lli,.\lioM  ol    whuh   ill   lilr,  he  niax'  In'   laililiil    111  a   sl.ilr  m( 

*<'iuI(mI  aiiil  lU'.hl  I'l  I'Mi'iUH'  K'lalicns  with  his  |i  IJnws.  I'.nt  i| 
(hat  li'imiila  tan  he  icali/cil  oiiU'  in  a  slalo  I'l  sm  i(l\-  lai  ir 
iuo\r<i  IM  nalnic  lioiu  tin-  pirscnl,  and  il  ihal  stale,  in  adilitinii, 
IS  so  |Min'ili\r  and  siaiplr  as  In  pio  Indi-  ihr  sm  iai  fonipli'M 
til's  ot  nividii  n  llir,  thr  anlhni  nl  ihr  Inrmul.i  ina\'  iint  (mn. 
pi  iiM  it  lu"  IS  HI' I  li'd  .IS  an  Mns.ili- and  inipiaitn,il  sm  iai  imiuIc, 
.Svu  h  IS  (hr  pnsitioM  to  whuh  vnn  I  hiincn  is  k  diucd  li\-  this 
nuMhod  o\  n  itiiism. 

Vlu-  scv  nnd  nii-lhnd  nl  i  iitu  ism  is  «imt('  as  impnilaiit  in  ic- 
siilts.  as^nmnis;  ihr  punts  Wi-ll  laKcn,  he*  ansr  it  discicdils  llic 
tuathiMii.itu  al  uMsnniiu;  h\-  which  the  loinml.i  is  cMihcd. 
\'\\c  niiMhod  nl  proiednic  is  in  show  that  \nM  Thiinrn  tir.iliil 
.»s  const, I'at  ni  known  s(>mc  (|ii.intity  w'li*  li  in  reality  is  v.ni 
.\h\c  ov   nnknowii.      Anions    the   In  si   to  »Io  this   w.is    I'.iii  L' 


'  l';Alok.  Pif    rhi',n(-<i<>  hf   I. (hit  ts'w    InUuH^s^fsftx  lUs   /.i»J'H\se<:  una  vcm 


"'*^. 


I  |c   ';,l\":  "  til'      (mi  ||iii|,i 


l'"/V    Illl'Xh  N 


85 


w,i'.   f  .ht.iin'  'I    ft  0111    til' 


(uiiiiiil.i         //yfr/    i    I'l  'III,      iiii!n(  lat'i)     (Irnotr',     tli';    /'Jlit 

'"""  ''"'  '.niii,  th'  <l-  ii'iiiiiii.itMi  til.  niitiihf  I  of  flio-.r  ■iiifdi^' 
wli'.iii  III'  Kill  I,  (livMl'd  I'.iit  r.  \\\i  y  ,A  \\v  '|r!iMni;ii,itor 
I'.ill','  ' '|iiiv,iImiI  to  th.  /',,(  th'  niinicratr.r  .r-  'Hi''  v  <,\  \\v: 
"ii"!'''!'"'  'I'li'.l''.  th'  Miiplir,  th.it  I,  [,;ii(|  (f.  til'-  hih'.r'T  ,it 
till'  P'IiIh  III, II  tmi''  ,  l)iit  th''  ;■  -.f  th'  'I'  ii',Miin,it',i  'I'  iif,t(js  tlu: 
.'.ni|.lir.  '.(  \v,i[M-,  111,, I  (  -..r.i'd  \,v\u\t  th,.  hiym;;  out  ',f  thr-  farni. 
(  )iil\'  !.)■  |p|,i' MM.;  th'-  Ivvf)  r's  ff|ii,il  ff.  '  ,1' h  "th't  ha.  it  tc' n 
IHtssilijc  f'.i  th''  I'lit  ((,1  iiitcrr-.t;  t'.  r,|)taiii  a  iiiaxiinniii  valiu; 
•■•'  •!  'I' (iiiitf  rat'-  '.(  waj;r',."'  'riii-,  wrtiijfl  I,'  a  jir.t  fritm  .111  if 
il  vv'ic  (  orii  CIV  (I  that  vm  'llniti'd  wa',  d'  alint;  with  two  wul'ly 
rliff'iciit  '((.tioMiK  i(f;iMi(',  at  til'-  satti''  time,  f'nt  a  syrnpa- 
lli<  ti(  AwAy  o(  vol)  'Hiiiii'Ii  riiak'',  it  fairly  '  har  that  hf  xvy-AxArA 
the  (((PiMiiiiK  ( (iixlitioii',  iiiifl'T  whi'li  |)',th  fiioii])  f  arul  If 
W'ulscil  a-.  i(l(iiti«al,  I  If  a'..ntii''l  that  natural  waf^'f'S  already 
cxi'.lrd  in  the  isolatr-d  si:'!..  ;  ,ind  as  a  nicans  of  fIisf:f>vorin{^ 
the  inathcniati' al  <  xpifs'.ioti  f'li  snfdi  waters,  lif  snpposfd  that 
a  ntmilicr  ol  lahoicis,  to  wliotn  it  v,  a  niatt'-r  of  indiffcrencf; 
whcllicr  tli'y  hihor  for  waj;fs  or  fiiltivatf  a  rnartMnal  farm  f-n 
their  (twn  at  rount.  <  (mihiricd  to  lay  out  a  farm.''  If  th''  social 
ariaii;M'iiiciits  arc  the  same  in  l.'tth  cases  ;  if  the  society  is  sta- 
tionary, as  the  isohitcd  stal'-  was  c')nf:':ivefl  to  fjc  ;  jf  mci)  were 
e(|nal  in  skill  and  the  standards  of  life  vvi':  the  saiii''  ar,i';nrf 
chem  all,  then  the  nce.essaries  or  hfe  siihtrarte'l  from  an  'fjiial 
wa^c  W')nld  have  <''iiial  snr|;liis,  and  the  r's  woiihl  he  equal. 
Thus  I'".d(  k's  objection  falls  t')  the  ^ronnd. 

Konior/.)  nski    in  the  article   referred   to  above   also  attacks 

'  (^)ii(it(.(l   l,y    II.  I,.  M-.«)i(!  in   liis    Von    Tliini(tt\  'I'/icory   of  hUttiral    lVa/;f-. 
See  f,Uiinle)ly  Jt'iniKil  «//■'., diiomus,  v.  9,  p.  389. 

"(.''.  y.  <!/  /•-"'//.,  V.  9,  l>.  39«- 


86 


GERMAN  WAGE   THEORIES 


[382 


>!    . 


1 


z  =  ■ 


He  defines  p  as  the  exchange  value  of  tlie 


the  formula,  but  in  a  somewhat  different  way.  He  inquires 
whether  a  general  relation  between  the  rate  of  interest .~  and 
wage  surplus  y  exists  which  finds  its  proper  expression  in 
p-{a^  y) 
q{a-Vy)  " 

product  after  the  deduction  of  all  outlays  except  wages  and 
interest  on  capital,  q  {a  +j')  expresses  the  value  of  the  capital 
invested.  </-- the  number  of  year's  wages  which  equals  the 
value  of  the  capital.  The  question  now  relates  to  the  pro- 
priety of  treating  /  as  constant,  and  of  valuing  capital  in  the 
manner  indicated.  That/  should  not  be  treated  as  a  constant 
must  be  evident,  says  Kotnorzynski,  from  the  fact  that  p  is  a  dif- 
ferent quantity  in  every  different  process  of  production.  More- 
over, it  is  straining  matters  to  suppose  p  the  same  when  great 
changes  may  occur  in  wages  and  intere.;!".  Likewise  the  value 
of  the  capital,  a  complex  of  goods,  is  treated  as  constant,  al- 
though the  fornmla  for  wages,  a  changeable  factor,  is  used  to  ex- 
press its  value.  It  is  difficult  to  regard  capital  as  having  a  static 
value  when  it  is  itself  a  dynamic  entity.  The  goods  ol  capital 
become  in  turn  products,  and  other  goods  take  their  place,  yet 
the  value  is  conceived  as  the  same.  Products  of  one  process 
find  application  as  capital  in  some  other  production  process,  in 
all  of  which  cases  von  Thiinen  conceives  the  value  of  capital  as 
dependent  upon  the  rate  of  wages.  Von  Thiinen  does  not  seem 
to  have  applied  a  consistent  theory  of  price  determination.  It 
follows   that,  '\{  p  and   q{(iAry)  vary  by  no  known  law  with 

every   different   process  of  production,  z  =z- — --  - — '---   cannot 

q{a+y) 

express  a  constant  relation  between  interest  and  surplus  in  all 
industries.  It  is  unsuited  to  express  a  gen'^ral  relation,  how- 
ever well  it  may  represent  the  relation  between  wages  and  in- 
terest in  specific  industries. 

Komorzynski  errs  in  two  particulars :  first,  in  not  remember- 
ing the  static  conditions  of  the  isolated  state  ;  secondl}-,  in  dis- 
regarding the  author's  definition  of/.     Von  Thiinen  nowhere 


,:;* 


[38: 


383]  ^    '-y  T//C/XEJV  87 

has  />  represent  value.  If  he  speaks  of  mining,/  stands  for  so 
many  pounds  of  silver;  if  of  agriculture,  then  so  many  bushels 
of  rye.  It  will  be  seen  that  this  error  vitiates  the  argument  of 
the  example  upon  which  he  relies  to  prove  his  position.  He 
says,  "  If  the  rate  of  interest  is  5  per  cent,  and  the  rate  of  wages 
400  florins,  then,  in  three  different  forms  of  production,  these 
equations  may  exist: 

5       _    2500  —  400 
100  ~ 


I. 


II. 


Ill 


J  . 
100 

^  5  . 
100 


105  X  400 
1 200  —  400 
40  X  400 
460  —  400 


,  where/*  =  2,500  and  ^7  —  105. 
,  where/  -=  1,200  and  (7  =  40. 
,  where  p  =  460  and  ^  =  3. 


3  X  400 

"  But  if  {a  +j/)  should  rise  from  400  to  450  florins,  then  the 
following  unequal  rates  of  interest  would  result : 

4-33  _    2500  -  450 
100 

4.16 
100  ~ 


"I. 


'II. 


105  X  450 

1200  —  450 


III. 


74' 
100 


40  X  450 

460  —  450 


l>  1 


3  X  450 

If  />  represents  not  value  but  product  in  kind,  there  is  no 
necessity  of  assuming  that  /  remains  constant  when  the  rate 
of  wages  changes.  Why  may  not  /  change  in  quantity  so  that 
the  value  of  the  product  may  so  adjust  itself  as  to  counteract 
the  disturbance  of  a  change  in  wages  ?  In  which  case  the  rate 
of  interest  would  remain  the  same.''' 

The  only  remaining  criticism  of  von  Thiinen  which  will  be 
noticed  here  is  that  by  Professor  H.  L.  Moore  in  the  articles 
referred  to  above.'     Says  Moore,  "  Thiinen's  purpose  in  the 

'Quoted  by  Moore,  see  Quarterly  J.  of  Econ.,  v.  9,  p.  398. 
'  Quarterly  Journal  of  Economics,  v.  9,  p.  399. 
•  Ibid.,  April  and  July,  1895. 


88 


.V  IX  ii-.i<;r  /7//(>A'//-\ 


}^- 


whole  work  is  to  riiui  iii.ilhcin.itic  al  cNpic-ssions  Inr  the  natni.il 
rate  of  iiilrn'sl  ami  tlu"  nalnial  rali- ol  wa^fcs.  TIu' method  by 
which  he  does  this  is  I'list  to  liiul  a  loi  iinda  expicssmi.;  the 
iiUeidepeiideiu  e   ii(   waives   and    iiiteiest  in    the   isolated    stale. 


The    fonmila,  .■: 


/'      {'I  I    r) 


,  we  shall    eall    loiimila    . /.      in 


this  (tMinula  all  the  tinaiitities  aie   known  c-xee])l    r  and     .      In 
order  to  iind  the  valnes  of  r  and  "■,  he  next  .itteinpts  to  hnd  an 
independent  expn-ssion  lor  r  or  what  is  the  s.niie  thin^;.  sinee  tr  is 
known,  an  intlependi'nt  c-xpic-ssion  lor  (w  d    i);  and  by  "^uhstilnt 
ini;  lor  (./   I    r)  in  i'oi  inula  ./  obtain  the  valne  ol  ::■'.     The  (oini 
Ilia  whieh  enables  him  to  hnd   the  independent  exiJiession   lor 

;/!/.-(,/  I    r)l 
((/   I    r)  is       //'/('/  I    i)      .      In  this  formula,  whieh  we  shall  eall 

r 
foiinula  /)■.  all  the  (lu.mtitii's  aie  assumed  as  known  excepting;  r. 
lUit  how  ilid  vi)n  Thiincn  obtain  the  cjuantity  f/</?  lie  (von 
Thiiiioii)  says:  Su|)posc  '  the  layinj^  out  of  the  farm  re(]uired  the 
yeai's  l.ibor  of  //</  men  ....  I  hniuestionabiy  in  order  to  provide 
a  new  larm  is  needed  not  t)nly  labor,  but  also  the  use  ()fea|)ital; 
(but)  aecordini;  to  ^  13,  we  ean  reduce  the  co-operation  ot  lap- 
ilal  to  terms  ol  i.iboi-,  and  thus  express  the  costs  ol  layini;  (uit 
thc^  larm  entirely  in  terms  ol  labor-'  When  we  refer  to  ^  13  to 
see  how  the  reduction  is  to  be  perfoi  lued,  wc  find  that  it  is  ilone 
by  means  of  the  rate  oi  interest.  The  lallacy  in  the  ari.;nmeiit 
is  eviilcnt.  Thunen's  whole  pioceilure  is  a  mere  bc^^in^  of  the 
(Uiestion.  His  i)ioblem  is  to  luul  the  values  of  )'  and  -s  in  the 
loiniula  .  /  ,'  antl,  to  soKh-  the  problem,  he  undertakes  to  find  an 
imlepenilent  ex|M-ession  for  i^</  I  }■)  b\'  means  of  formula  />',  and 
by  substitutuii;  for  {<i  I  1)  in  formula  yl  obtam  the  value  of  ;:. 
But,  in  order  to  j^et  the  ']iiantit\'  //</  in  formula  /•",  he  .issuines 
that  s  is  known.  II,  hov  ever,  r  is  known,  ti.-n,  accordini;  to 
formula  .1,1'  is  known.  Thunen  unilertakes  to  find  tlv  value 
of  the  unknown  (juantilies  r  and  ;  ;  and,  in  attemplint;  to  solve 
the  problem,  he  uses  the  vny  cju.uitities  that  he  wants  to  find 


4 


V  n.itiii.il 
I'thod  hy 

(•<!   st.ilc. 


/.      In 


ul  :...      In 
<>  fiii<i  an 
sincr  tr  is 
uihstitiit 
he  loriu 
ssion   lor 

shall  call 

cptinj;  /■. 
I Ic  (von 
niicd  the 
)  provide 
ifcai)ital ; 
n  ol  cap- 
yini;  out 

o  ;i  13  to 

it  is  (lone 
iilMum'nl 
11^  of  the 
I  ,a  in  the 

0  find  an 
la  /)',  and 
line  ol  J. 

assumes 

1  I'd  i  Hi.;-  to 
h''  value 

to  solve 
s  to  find 


3«5 


ro/V  ■/■/// A'/-: A' 


89 


as  known  (piantities."  '  This  expresses  in  the  rle.ir(\st  possible 
manner  I'rof.  Moore's  position.  It  is  a  position  which  appears 
unassailable.  I  can  discover  no  Haw  in  his  arfMUiient  ;  his  study 
of  von  'I'luinen  has  evidently  been  tlKuonidi  ,ind  tandid.  Of 
von  Ihiinen's  critics  and  commentators  he  seems  to  me  to  be 
the  best  iiilormed  on  the  author's  InndaiiK  nial  ideas.  lie  was 
tlu-  lirst  adetpiately  lo}.,Masp  tlu- true  limitations  of  the  isol.ited 
state  ;  to  note  the  true  difference  betwi:eti  the  d\'nami(  and  static 
conditions  of  von  Thi'men's  problem.  A  prope-r  emphasis  on 
the  last  mentioned  point  has  enabU:d  I'rof.  Moore  successfully 
to  defend  von  Thiinen  a<fainst  those  who  h,iv(r  not  ade(|uately 
comjjrehended  him.  This  same  insij.dit  has  enabled  I'rof. 
Moore  to  hit  upon  tlu;  real  weakness  f)f  von  Tiiiinen's  work, 
and  to  show  that,  after  all  the  laborious  woik  on  the  isolated 
state,  the  conclusion  is  worthless. 

In  two  particulars,  then,  wc  find  voti  Thiinen's  fortnula  for 
WJi^es  unsatisfactory  :  h'irst,  assuming.,'  the  conditions  of  the 
isolated  state  as  admissible,  the  formula  is  not  obtained  by  a 
proper  method.  Secondly,  if  the  formula  were  properly  ob- 
tained, it  would  be  useless  on  account  of  the  extreme  linu'ta- 
tions  of  the  isolated  state  upf)n  which  the  formula  is  based. 

If  the  results  based  upon  the  isolated  state  may  not  be 
accepted,  and  it  is  found  necessary  to  set  aside  that  |)art  of  the 
discussion  which  relates  to  wattes  as  f>f  slij^ht  value,  it  will  not 
be  (lenii;d  that  there  are  some  things  of  real  interest  in  his  treat- 
ment based  upon  the  objective  economic  world.  By  many  years 
von  Tliiinen  anticipitated  a  theory  of  prevailinj^  v/aj^es'  that 
was  independently  developed  and  made  known  to  the  world 
by  Professor  J.  B.  Clark — a  theory  which  is  quietly  finding  it.s 
way  into  the  paj.;es  of  econouu'c  works,  and  becominj.^r  a  sort  of 
common  f)roperty  with  almost  no  knowledge  ov  acknowledg- 
ment of  its  source.  As  will  be  seen,  however,  V(jn  Tiuineti 
found  slij^ht  comfort  in  the  theory  for  the  future  of  the  race. 


'(?.  y.  o/£.,  V.  9,  T).  405. 


''/J^'r  holirle  Stunt,  li,  p.  178- 193. 


go  (;/■/:.)/. i.y  ir. !<;/■:  lu/A^K/r.s  i  -^^iU 

I  Ic-  pointed  out  til, it  .11)  niul(M  t.ikci  will  not  (inplo)-  .tddition.il 
l.ilioK-r.  unless  thry  (.iiii  loi  liiiii  .it  Ic.ist  .is  iikk  Ii  .is  Ik-  [i.iys 
tlicni.  It  tlir  |i()iiit  ()l  ((luivMlriu  (•  Ixtu'ccii  icliiiii  ,ind  w.i[;(.'- 
p.i\  iiuni  li.is  |)(<-n  rc.K  lii<l,  then  .i  li.c  ol  \v.»j;i  .  with  ,\  st.itioii 
•u  \-  v.ihii"  III  piodiit  t  (/.  r  ,  onlpiil  nl  l.ilioici  s)  l)iiii;;'.  .ilxmt  ,i 
drciiM'C  t>|  l.ihoicis  cniplDycd,  .ind,  .is  .1  icsiill,  .1  d((  ici  .nj 
outpnl.  I'lnlluM .  .m  im  rcisc  ol  v.iliic  of  piodiK  I  willi  sl.ilion- 
M\  w.ijM's  \'ii'Ids  till'  opposite  result,  \i/..,  .iddit  1011. illy  employed 
!.ll)t)i  with  .111  ill  re.ised  »)iilpiit.  Siiiee  it  lies  in  llie  iiitere  .1  ol 
the  imdeil.iker  to  ineie.isi-  the  niiuihei  of  his  l.ihoicis  so  loiiir 
.IS  hy  their  emitloymeiit  .1  net  .idv.mt.ijU'  .leciiies  to  him,  the 
limit  ol  th.it  iiuie.ise  is  re. u  lied  when  the  oiitjuit  ol  the  l.ist 
l.iI)oier  emplo\-ed  is  entirel)"  iihsorhed  h)'  his  w;i};es.  'Ilic 
w.i!.;es,  ti;<'n,  ol  the  List  l.ihorer  eniplo\-ed  must  ;il)oiit  e(|ii,il  his 
oulput.  Hut  these  w.um's  aic>  noiin.il  lor  ;ill  liihoiei.s  ol  like 
skill,  hec.uise  lor  like  serviii-  une(|ii.il  w.i<.;es  c;innot  he  piid. 
I'.inployiiH'  the  term  "  m;ir^iiiiil "  lor  "last  employed,"  we 
re.uh  the  followini^  law:  wa^es  arc  determined  by  the  product 
ol  m.ii  i,Mn.il  l.il)t)rcM'.s. 

Von  'I'hiinen  did  not  discuss  this  doctrine  in  det.iil.  Much 
\>  .is  lelt  to  the  e.is)'  acijiiiescence  or  inia<;ination  of  the  reatkr. 
h'or  iiist.iiue,  one  leils  the  lack  ol  scientific  I'xplanation  ol  tho 
tiue  sit;ni('ic.ince  o'i  m.iiiMnal  emplojinint.  'Ih.it  von  'llunien 
himsell  leco^nized  the  widelield  ol  Ksoit  lor  the  mu'm|)lo)'ed  in 
the  margin, il  usis  of  c.ipital  can  scareely  he  douhtc-d,  other- 
wise he  could  not  have  assigned  so  important  an  a|^ency  to  it. 
That  tlu'  the(U)-  .itli.u  ted  almost  no  attiiition  amon^  thinkers, 
who  must  he  supposed  to  have  read  the  work,  may  i)e  .itlrih- 
uted  to  its  ri.uMiienl.ir)-  tre.itment.  As  it  stands  in  von  'rininen's 
p.ii^es  the  llu-ory  is.uIi!;ression.  Von 'riiiinen  l.iid  c;omparativc'ly 
no  em])h.isis  upon  the  m.itti.-r,  hecatist-  he  was  not  pi  iinaiily 
interested  in  the  statement  of  the  law  of  present  wa<;c-s.  lie 
was  fir  more  concerned  with  tiie  discovei)-  of  ;i  l.iw  of  distribu- 
tion, the  rcaliz.ition  c>f  which  should  secure  to  the  laboriiiij 
cl.iss  waives  adequate  to  a  reasonably  \\v^\\\  level  of  life,     lie 


"•ft*, 

i 


i(t<liti(>ii.il 
.  lie  l>.i>'s 
ml  w,i[M' 
;\  sl.ttidii 

.  .llxilll  .1 
let  I  (■,1M<| 
ll  sl.lliuiN 
■iiiploycd 
ntcK.'.t  ()| 
s  so  l( 111"' 
>  limi,  tlic 
I  the  l.ist 
\vs.  'Ilic 
(■(|ti.il  his 
rs  <.l  like 
l)C  p.iid. 
ycd,"  \\c. 
V.  product 

I.  Much 
he  ii'adiT. 
ion  ol  the 
n  'rhiiucii 
iph)ycd  in 
cd,  otlin- 
Muy  to  it. 
;  thinkers, 
!)C  alliih- 
Th  linen's 
paratively 
pi  iniarily 
if^es.  lie 
f  dislrihu- 
:  laborin;^ 
life.     He 


w.is  convinced  that  the  |)res(;nt  system  did  not  do  tin  ..  It  was 
noi  enou{.di  for  him  it  the  vva^jes  received  were  e(|ii,il  to  amount 
prochiced.  More  important  was  th'-  inquiry:  Are  laborers 
secure  hom  misery  and  want  i* 

Alter  slatin^j  the  above  theory  of  waf^jes,  he  pioceeds  by 
means  of  the  theory  to  (()rre(;t  sonxt  misap|)reh''nsion  .  in  r(!- 
i;aid  to  the  labor  prol)liti).  The  soeiali.ts  deny  that  one  man, 
whatever  Ids  skill  may  be,  should  receive  as  much,  or  more, 
for  an  hour's  work  as  another  man  receives  f(;r  twelve  Injurs. 
Hut,  says  von  Tluinin.  it  is  idle  to  cotnjtlain  of  an  undertaker 
who  pays  his  sujjeiintcinlenf  a  superior  reward.  lb;  pays  it 
simply  b(.'cause  the  overs.  ■  rs  pr</'luct  at  least  e(|uals  his  wa(.jc.s. 
'I'hc  socialists'  scheme  of  iisinr.^  labor  time  a  .  a  measure  of  wa<.jes 
is  a  dream.  The  misery  of  the  laboring  class  cannot  be  laid  to 
th(.  fault  of  the  "  (;ntrepr(rneiiis,"  for  they  cannot  pay  nifjre  to 
labor  than  labor  is  worth  to  them.  If  some  one  objects  that 
the  earlier  employed  laborers  j)roduce  mfjre  than  ihc.-y  receive, 
and  that  thus  the  conductor  of  industry  has  a  surjjlus  at  his 
disposal  for  hi<^her  j)aymcnts  which,  if  he  withhoMs,  makes 
him  responsibh,"  for  the  laborers'  lot,  it  is  to  Ix;  said  that  such 
an  f)bjection  shows  a  confusion  oi  moral  and  business  princi- 
ples. If  one  undertaker  alone  did  what  is  here  suj^'^ested  he 
would  be  driven  out  of  business  by  his  c(in)p(;titors  ;  and,  if  a 
nation  did  tliis.it  Wfjuld  suffer  by  f(jreij^fn  competition.  It  may 
be  laid  down  as  an  absolute  principle  that  no  laborers  shouM 
be  employed  wliose  rjut[)Ut  does  not  cover  the  cost  of  their 
employment,  otherwise  the  wealth  of  sfjciety,  which  ouj^dit  to 
be  increased  by  the  labor  force  of  a  nation,  would  be  by  it  di- 
minished. No,  the  misery  of  the  laboring  class  may  rot  be 
remedietl  by  an  a[)i)eal  t<j  the  sense  of  duty  of  the  rich,  but 
must  be  met  in  some  rjther  way. 

Von  Tiiiinen  i)rf)cecds  to  show  f)y  means  of  this  law  of  wafjes 
that  under  the  present  system  the  fate  of  the  laborinj.^  class 
may  be  a  mcelancholy  one.  There  seems  to  be  no  escape  from 
the  main  conclusions  of  the  theory.     If  we  suppose  wages  to 


■f 


i  . 


'ill!: 


g2  GERMAiX  WAGE   THEORIES  [^88 

increase,  vvitliout  a  decrease  in  the  number  of  laborers,  tlic 
last  laborers  employed  do  not  earn  their  waives,  lunployers 
will  then  discharge  men  till  the  last  one  retained  earns  what  is 
paid  to  him.  Thereby  many  laborers  are  made  idle,  and 
rather  than  starve  they  will  be  willing  to  work  for  the  old  rate. 
Hence  under  these  circumstances  no  rise  of  wages  can  occur. 
If,  on  the  other  hand,  the  laboring  population  should  increase, 
while  capital  and  land  remain  constant  in  amount,  then  the 
new  laborers  can  find  no  employment  at  the  present  rates. 
This  is  plain  from  the  fart  that,  since  this  wage  already  absorbs 
the  entire  product  of  the  marginal  laborers  and  every  addi- 
tionally employed  laborer  produces  less  than  the  one  previously 
employed,  the  hiring  of  the  new  laborers  at  the  present  rate 
involves  a  loss  to  the  undertaker.  It  follows  that  the  new 
laborers  can  find  employment  only  at  a  lower  rate.  If  addi- 
tional population  makes  necessary  the  employment  of  labor 
upon  less  and  less  productive  objects,  wages  must  continue  to 
fall  till  the  limit  of  subsistence  is  reached.  The  increase  of 
population  under  these  circumstances,  bringing  its  attendant 
evils,  seems,  however,  to  von  Thiinen  a  certainty.  But  the  evil, 
he  thinks,  will  not  fall  upon  all  indiscriminately.  He  holds  to 
the  doctrine  of  the  salvation  and  survival  of  the  fittest.  By 
constitution  men  differ  in  soundness  and  skill.  By  reason  of 
life's  changes  men's  industrial  fitness  differs  with  age.  Hence 
if  there  is  a  surplus  of  population,  only  the  healthy,  the  most 
skillful,  the  most  efficient  and  those  in  the  prime  of  life  will  be 
retained.  The  old,  the  decrepit,  the  weak,  the  inefficient  will 
be  industrially  left  behind.  We  may  thus  approach  conditions 
in  which  the  only  relief  from  actual  suffering  is  an  appeal  to 
charity  funds.  Reckless  increase  of  population  is  an  evil  from 
which  even  good  harvests  may  not  rescue  us.  Von  Thiinen  's 
haunted  by  the  suggestion  that  prosperity  (economically)  gives 
well-being,  well-being  overpopulation,  and  over-population 
misery;  r.nd  he  asks  whether  there  is  no  escape  from  this 
vicious  circle.     Has  Providence  designed  that  as  the  earth  be- 


[388 


389]  ^'ON  Tll'UNEN 

comes  inhabited,  the  future  should  become  darkened  by  the 
vision  of  increasing  misery?  He  thinks  there  must  be  an 
escape.  Providence  is  not  so  cruel ;  but  clearly  to  define  the 
conditions  whose  fulfilment  will  ensure  happiness  to  men,  is  a 
problem  with  which  he  cannot  attempt  to  deal. 


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23  WEST  MAIN  STREET 

WEBSTER,  N.Y.  14580 

(716)  872-4503 


'^ 


' 


CHAPTER  V 


THE   SOCIALISTS 


r. 


What  is  often  called  the  pessimistic  side  of  Ricardo's  tco- 
nomic  ideas,  viz.,  the  side  which  rests  wages  upon  some  neces- 
sary demand  on  the  part  of  laborers,  reached  its  highest  de- 
velopment in  the  socialistic  view  of  wages,  Marx,'  like  Von 
Thiinen,  was  dissatisfied  with  a  simple  appeal  to  supply  and 
demand  as  an  explanation  of  wages.  According  to  him  it  ex- 
plains nothing  but  wage  changes.  "  The  price  of  labor  at  the 
moment  when  supply  and  demand  are  in  equilibrium  is  its 
natural  price  determined  independently  of  the  relation  of 
supply  and  demand,  and  how  this  price  is  determined  is  the 
question  at  issue.'  His  treatment  of  wages  is  a  unit  with  the 
treatment  of  the  value  of  commodities.  "  That  which  deter- 
mines the  magnitude  of  the  value  of  any  article  is  the  amount 
of  labor  socially  necessary  for  its  production.'"  The  value  of 
a  commodity  being  determined  initially  by  conditions  of  pro- 
duction, it  is  pui  into  the  course  of  trade  or  circulation  in  order 
to  realize  upon  it,  during  the  process  of  exchange,  a  surplus 
value.  Commodity  is  exchanged  for  money,  and  money  for 
commodity,  so  that  with  each  transaction  an  increase  of  value 
or  surplus  is  exacted.  If  it  were  otherwise,  the  exchange 
would  not  take  place.  A  similar  process,  says  Marx,  occurs 
with  respect  to  labor.  To  make  this  point  clear,  a  distinction 
is  made  between  labor-power  and  labor.  By  labor-power,  or 
capacity  for  labor,  is  to  be  understood  the  aggregate  of  those 
mental  and  piiysical  capabilities  existing  in  the  human  being 


'  The  references  to  Capital  Mt  to  Sonnenschein's  edition. 
»  Capital,  p  548.  »  Jbid.,  p.  6. 


94 


[390 


do's  (.co- 
ne liCCCS- 

y;hcst  de- 
li kc  Von 
ipply  and 
lini  it  ex- 
)or  at  the 
um  is  its 
ilation    of 
ed  is  the 
with  the 
ch  deter- 
amount 
value  of 
s  of  pro- 
in  order 
surplus 
oney  for 
of  value 
xchange 
K,  occurs 
stinction 
)ower,  or 
of  those 
an  being 


^g,-]  ti/j:  soc/A/.r^rs  gj 

which  are  exercised  whenever  there  is  produced  a  use  value 
of  any  description.'  Labor  is  labor-power  in  use.'  A  laborer 
is  labor-power  in  action.  The  value  of  the  two  may  be,  and 
usually  is,  quite  different.  The  value  of  labor-power  is  the 
price  of  labor  on  the  market,  or  wages.  The  value  of  labor 
is  the  value  of  labor- power  when  it  is  embodied  in  a  product  ; 
and  that  value  must  be  greater  than  the  former,  as  a  rule,  or 
the  capitalists  would  not  deal  in  labor.  At  one  point  in  the 
discussion,  Marx  sees  that  the  price  of  labor-power  will  be  fi.xed 
by  the  bargaining  powers  of  each  party  to  the  contract.  He 
also  says  that  the  minimum  limit  of  the  price  of  labor-power  is 
determined  by  the  value  of  the  commodities  for  consumption, 
which  are  required  to  renew  labor  energy  and  to  renew  the 
supply  of  laborers  from  fresh  generations.''  But  in  his  further 
treatment  he  assumes  that  wages  will  not  be  much  ab^  e  this 
lowest  limit.  He  does  say  that  if  it  falls  to  this  minimum  it  falls 
bclo7v  its  real  value,  for  then  it  would  exist  in  a  crippled  state. 
"The  value  of  every  commodity  is  determined  by  the  labor 
time  required  to  turn  it  out  so  as  to  be  of  normal  value."' 

The  method  of  converting  the  value  of  labor-power  into 
the  value  of  labor  and  thus  securing  a  surplus  value,  is 
the  kernel  of  Marx'  severe  indictment  against  capitalistic 
production.  Assuming  that  the  product  of  six  hours  of  labor 
almost  covers  the  cost  of  the  maintenance  of  labor,  o;- 
wages,  the  capitalist  class  is  guilty  of  wrongful  appropriation 
of  all  values  created  in  the  remaining  hours  of  the  working 
day.  This  analysis  of  the  industrial  situation  has  considera- 
ble enforcement  in  Marx'  historical  account  of  movements  to 
secure  a  shorter  legal  working  day.  Such  movements  have 
usually  encountered  the  united  opposition  of  the  employing 
class.  The  inference  is  easy  on  a  superficial  view ;  it  is  be- 
cause employers  dread  a  curtailment  of  a  surplus  which  they 


•  Capital,  p.  145. 

*  Ibid.,  p.  152. 


^  Ibid,,  p.  156. 
*  Ibid.,  p.  152. 


.390 


i: 


^ 


96 


GERMAN  WAGE   THEORIES 


[39: 


have  marked  as  their  own.  Marx'  accumulated  mass  of  evi- 
dence from  the  I"!nglish  liluc  liooks  as  to  the  barbarously 
long  hours  of  labor  of  men,  women  and  children,  exacted  in 
the  early  history  of  English  manufacture,  constitutes  some  of 
the  most  tragic  chapters  of  history.  His  account  is  admirably 
calculated  to  enlist  a  lively  sympathy  for  the  innocent  and 
almost  helpless  class  of  wage  earners,  and  at  the  same  time  calls 
forth  deep  resentment  against  the  powerful  capitalists  whom 
we  are  led  to  regard  as  heartless  and  rapacious  to  the  last 
degree.  The  real  point  made  here  by  Marx  is  that,  as  machin- 
ery has  increased  the  efficiency  of  labor  to  the  extent  of  en- 
abling a  worker  to  accomplish  as  much,  say,  in  four  hours  as 
could  formerly  be  done  in  ten,  the  hours  of  labor  in  a  day 
have  not  been  reduced  in  proportion. 

It  must  not  be  lost  sight  of,  however,  that  hours  of  labor 
have  been  materially  shortened  as  society  has  become  ad- 
justed to  machine  and  factory  conditions  of  production. 
Where  the  factory  system  has  developed  most  completely 
the  hours  are  not  so  long  as  to  excite  pity.  The  condition 
of  things  in  this  respect  under  the  domestic  system,  and 
in  the  early  factory  period,  as  well  as  those  where  older 
forms  of  production  still  survive,  is  far  less  fa  •  arable  than  in 
the  fully  developed  factory  system.  In  the  second  place, 
physical  productivity  of  capital  may  not  necessarily  be  value 
productivity.  Under  modern  conditions  laborers  cannot,  and 
ordinarily  would  not,  desire  to  be  paid  in  the  commodities  of 
their  own  making.  They  prefer  payment  in  a  universally  ac- 
ceptable commodity  representing  some  proportionate  value  of 
their  product.  The  working  man  is  interested  in  the  value  of 
his  total  product,  not  in  the  number  of  pieces  turned  out.  The 
figures  commonly  employed  to  show  the  enormous  increase 
of  productive  power  by  the  use  of  capital  nearly  always  fix  the 
attention  upon  the  physical  facts  of  the  case,  and  the  result  is 
sufficiently  startling.  But  if  comparison  were  made  only  be- 
tween the  values  of  the  product  with  and  without  machinery, 


^i^#i 


y^3]  '^'"^'-  SOCIALISTS  Q- 

\\  dirrercnt  impression  would  result,  especially  if  account  were 
taken  of  all  the  labor  involved  in  the  production  of  the  capital. 
These  who  read  the  earlier  portions  of  Capital  and  not  the  later 
are  apt  to  get  erroneous  notions  of  the  amount  of  exploitation 
of  laborers  which  exists  according  to  socialistic  conceptions. 
If  six  hours  of  labor  arc  sufficient  to  suj^port  the  worker,  but 
the  employer  forces  him  to  add  four  or  six  hours  more  to  each 
day's  labor  for  the  employer's  special  benefit,  an  injustice  is 
apparent.  But  if  from  the  product  of  the  additional  hours, 
all  capital  which  makes  possible  this  large  production  for  the 
laborer,  must  be  ieplaced,and  all  losses  incident  to  capitalistic 
risk  must  be  met,  the  amount  remaining  over  as  a  true  surplus 
value  on  a  priori  grounds  may  not  appear  great.  Marx  docs 
not  ignore  replacement  of  capital.  "  Whatever  the  form  of  tiie 
process  of  production  in  a  society,  it  must  be  a  continuous 
process,  must  continue  to  go  periodically  through  the  same 
pliases."  "  When  viewed,  therefore,  as  a  connected  whole,  and 
as  flowing  on  with  incessant  renewal,  every  social  process  of 
production  is,  at  the  same  time,  a  process  of  reproduction." ' 
The  very  condition  of  production  with  the  aid  of  capital, 
whether  the  economic  organization  be  the  so-called  "  capital- 
istic "  or  socialistic,  requires  that  a  large  share  of  the  annual 
income  or  social  dividend  be  reconverted  into  means  of  pro- 
duction, or  in  other  words,  that  it  be  devoted  to  the  service  of 
replacement  of  capital  whose  energies  have  been  transmitted 
into  products  of  a  lower  degree,  to  use  Menger's  conception. 
Marx  has  devoted  much  space  to  show  the  process  of  the  flow 
of  products  and  the  conversion  of  a  part  of  this  flow  into  capital. 
And  there  is  much  in  that  part  of  his  work  which  will  repay 
diligent  study. 

However,  Marx  regards  even  the  replacement  of  capital  to 
be  as  much  an  exploitation  as  is  the  personal  consumption 
of  the  capitalist  If  we  suppose  that  a  capitalist  has  made  an 
investment  of  a  certain  sum,  and  yearly  devotes  enough  of  the 

>  Capital,  1887,  p,  577-8, 


^^ 


II-    ] 


' 


gS  GEKM.IX  irAG/C   THEORIES  [^^^^ 

product  to  replace  the  ye.arly  wear  of  the  capital,  and  consumes 
the  rest,  it  will  be  but  a  few  years  when  he  will  have  consumed 
a  value  equ.d  to  his  capital.  Now,  the  ca[)italist  thinks  that  he 
has  consumed  the  product  of  unpaid  labor,  says  Marx,  and 
that  he  has  kept  his  capital  intact.  But  that  is  not  Marx' 
interpretation.  In  fact,  the  capitalist  has  consumed  his  own 
capital,  which  he  may  have  himself  produced,  but  has  appro- 
priated surplus  value  without  payment  to  the  amount  of  his 
orifjinal  capital.     Thus  replacement  i.-;  an  exploitation.' 

Of  special  interest  is  Marx'  conception  of  the  relation  be- 
tween wages  and  product,  as  well  as  between  wages  and  capi- 
tal. This  relation  is  first  indicated  by  an  illustration."  A 
peasant,  who  is  liable  to  do  compulsory  service  for  his  lord, 
works  three  days  for  him.'.elf  and  three  on  the  lord's  domrin. 
Under  these  circumstances  the  peasant  reproduces  his  own 
labor  fund.  If  the  lord  appropriates  to  himself  the  land  and 
other  means  of  production  of  this  peasant,  the  latter  will  be 
obliged  thenceforth  to  sell  his  labor-power  to  the  lord.  Under 
these  circumstances,  he  continues  to  work  three  days  for  him- 
self, the  time  necessary  to  obtain  his  necessaries,  and  three 
days  for  his  lord.  "As  before,  he  will  use  up  the  means  of 
production,  as  means  of  production,  and  transfer  their  value  to 
the  product.  In  the  same  way,  a  definite  portion  of  the  pro- 
duct will  be  devoted  to  reproduction  [replacement].  But  from 
the  moment  that  the  forced  labor  is  changed  into  wage- labor, 
from  that  moment  the  labor-fund,  which  the  peasant  himself 
continues  as  before  to  produce  and  reproduce,  takes  the  form 
of  a  capital  advanced  in  the  form  of  wages  by  the  lord." 

The  economists  of  Marx'  day  regarded  wages  as  advanced 
from  capital,  but  Marx  regards  wages  as  paid  from  current  pro- 
duct. He  says  that  it  is  only  here  and  there  on  the  face  of  the 
earth  that  what  laborers  receive  as  wages  is  not  what  laborers 
have  already  themselves  produced.'    He  complained  of  classical 


. 


»  Capital,  p.  582. 


^  Ibid.,  p.  580-1, 


*I6iti.,Y>.  581. 


I 


[394 

:on.suiiic.s 
consumed 
cs  that  he 
/larx,  and 
ot  Marx' 
his  own 
las  appro- 
jnt  of  his 
n.' 

lation  bc- 

and  capi- 

ition.'     A 

his  lord, 

s  domrin. 

;   his  own 

land  and 

er  will  be 

•d.   Under 

s  for  him- 

and  three 

means  of 

r  value  to 

the  pro- 

But  from 

age- labor, 

It  himself 

s  the  form 

rd." 

advanced 
ncnt  pro- 
ace  of  the 
t  laborers 
f  classical 


i 


'if- 
■  if- 


yj^-j  rilF.   SOCIAI.IS'IS  gg 

economy,  that  it  always  loved  to  conceive  social  capital  as  a 
fixed  niaijnitude  of  a  fixed  degree  of  efficiency.' 

As  will  be  seen  in  the  subsequent  treatment,  Marx  regards 
the  capital  of  a  country  as  constantly  changing  in  quant it>-, 
and  in  the  relative  proportions  of  its  elements.  Ui)on  these  two 
facts — accumulation  of  capital  and  the  change  in  the  constitu 
ents  of  capital — rests  the  fate  of  the  working  classes.  As  a 
first  step  in  the  argument,  we  must  make  clear  wh.it  Marx 
meant  by  the  terms  constant  and  variable  capital.  In  the  pio- 
cesses  of  production,  he  desired  to  place  in  clear  light  the  pre- 
cise part  which  labor  performed,  as  well  as  that  of  capital.  It 
is  a  common  observation  that,  under  ordinary  circumstances, 
values  in  means  of  production  are  perpetuated  in  their  products. 
Of  this  there  may  be  more  than  one  explanation.  One  com- 
monly entertained  is  that  capital  possesses  the  capacity  in  itself 
of  erecting  new  values  which  take  the  place  of  those  values 
dissipated  while  capital  is  performing  its  industrial  functions. 
This  view  Marx  rejects.  Another  explanation  is  that  capital 
has  no  such  capacity,  but  is  a  dead,  inanimate,  passive  complex 
of  things  upon  which  labor  operates.  Capital  can,  therefore, 
create  no  values  of  any  sort.'^  But  human  labor  possesses  the 
capacity  to  transfer  values  from  capital,  in  which  values  already 
exist,  to  products.  And  this  labor  does  unconsciously  and 
inevitably  while  it  is  performing  another  function  as  well.  It 
is  a  common  observation  of  economic  life  that  products  possess 
greater  value  than  is  to  be  found  in  their  means  of  production. 
The  true  explanation  is,  according  to  Marx,  that  while  labor  is 
transferring  old  value,  it  is  also  creating  new  value.  Thus 
labor  performs  a  double  function  in  the  same  act.  In  the 
process  of  production  itself,  or  that  part  of  the  process  which 
is  represented  in  the  transferring  of  value,  no  quantitative 
change  in  value  occurs.  That  part  of  capital  which  is  repre- 
sented by  means  of  production,  by  the  raw  material,  auxiliary 


581. 


^Capital,  p.  622. 


» Ibid,,  p.  383. 


^m 


lOO 


<;/'/:. u. I. V  ii:i(;/:  riih.oh'ii.s 


.V/> 


h 


il 


in;itc-i  iai,  and  the  iiisti  iinu'nl!>  of  labor,  is  calKd  lonstant  capit.il. 
On  thi' otlu'i' hand,  lli.il  pail  of  lapilal  irprcscnti-d  hy  lahor 
powiT  docs  in  tlu"  pn)ccss  of  prodiiclion  iindcT;.;o  an  allcration 
of  value.  "  It  hotli  I'cpiodiiccs  the;  c(|nivalrnt  of  its  own  value, 
and  also  rcprodiu cs  an  excess,  a  surplus  value,  which  may  itst  If 
var\';  m  \y  l)f  more;  or  K'ss  accordinij  to  circumstances.  This 
p.irl  of  capit.d  is  beinj^  contiiuiall)'  transformed  from  a  constant 
to  a  variable  magnitude,  and  is  called  variable  capital."' 

Mar.\  opposes  the  idea  of  Atlam  .Smith  and  Kieardo,  that 
capital  in  its  ultimate  analysis  may  be  n.vsolved  into  advane  -  s 
to  labor.  All  surplus  value  is  divided  int(»  im;ans  of  piodue- 
tion,  and  the  direct  support  of  laborers.  It  is  illoj^ical,  he  de- 
clares, to  admit,  as  Adam  Smith  did,  that  in  the  case  of  the 
individual  capitalist,  all  capital  does  take  these  two  directions, 
and  then  deny  it  for  the  cajjital  of  society.' 

Mar.v  does  not  mininii/.e  the  im{)ortance  of  capital  as  a  pro- 
ductive a<;ent.  lie  shrinks  from  conceiving  it  as  possessiiitr 
power,  preferring  to  reijard  capital  as  loaded  with  value  trans- 
ferable by  labor.  Although  he  is  usually  an  unsparing  critic 
of  the  capitalist  class,  at  tiiues  he  is  forced  to  ^ive  capitalists 
credit  for  the  social  service  of  havin_t;  forced  the  human  race 
to  produce  and  develop  its  powers.  Without  the  capitalist, 
.society  might  not  have  created  the  material  conditions  which 
alone  can  ft)rni  the  real  basis  of  a  high  form  of  society,  and  in 
which  the  full  deveKi[)ment  of  every  individual  forms  tin;  ruling 
principle.^  Hut  in  performing  this  service,  the  capitalist  has 
exalted  the  principle  of  .saving.  Accumulation  has  come  to  be 
the  law  and  the  prophets.  In  Marx's  view,  at  the  bottom  of 
all  accumulation  is  the  propensity  and  power  to  withhold  from 
labor  a  part  of  its  just  share  of  social  product,  liut  capitalists 
are  charged  with  having  sometimes  forced  conditions  which 
result  in  adding  to  their  profits  at  the  expense  of  laborers' 
necessary  support.  Wages  are  forcibly  reduced  below  the 
value  of  labor  power. 

^Capital,  p.  19 1-2.  *  IbiJ.,  p.  601.  ^  Ibid.,  p.  603. 


li 


1 .5'/' 

t  c.'i|)it.il. 
yy  liiltor 
ilt(-!.itiiin 
vn  v.iliic, 
nay  it\(  If 
•s.  Tliis 
cMiistaiil 

irilo,  that 
advaiU'  s 
piodiK - 
al,  lie  (Ic- 
sc  of  \\\r. 
lircclioiis, 

as  a  pro- 
losscssiiii^ 
luo  trans- 
in^  critic 
capitalists 
man  race 
ca[)italist, 
)ns  which 
ty,  and  in 
the;  luliii'^ 
talist  lias 
:)nic  to  be 
jottoin  of 

old  from 
capitalists 
)ns  which 

laborers' 
Uelow  the 


3fj7-|  -n/f:  Siu/.tr  /sr.s  ,o, 

A  second  factor  in  a(  t  nninlation  is  relief  Imin  the  necessity 
(if  hirnishin<4  capital  in  pi(i|)ortion  to  l.iljor  enipl(>\'cd.  Any 
}.;iven  capital  is  niade  siifliciint  l)j'  re(piirin^'  hmj^er  hours  in 
factories,  by  day  and  ni^ht  shifts  in  extractive  indnstries,  .md 
by  the  reliance  n,..)n  nature  in  a;.;i  icultnre  as  an  iniUK diatc 
source  of  j^n-ater  accumulation.  '!  lie  [.General  result  is  that 
"by  incorpor.ition  with  land  and  labor,  cajiital  ac(|uires  a  power 
of  expansion  that  permits  it  to  expan<l  its  accumulation  bc- 
yon<I  the  apparent  lin.its  of  its  own  ma;.jnitude.' 

Hut  the  mo-^t  important  factor  in  accumidation  is  th  pro- 
ductivity of  S')cial  lal)or.  All  nature  works  in  the  interest  of 
the  capitalist.  While  machines  arc  vveariu}^'  f)Ut,  and  having 
their  value  transferred  to  products,  science  and  technolo}.'y  are 
making  their  advances,  the  results  of  which  arc  incorporated 
in  the  new  machines  without  additional  burden  to  the  capitalist.' 
'I'hen,  too,  labor's  capacity  to  transfer  value  frrtni  ca|)ital  to 
product  in  the  very  act  of  creating  new  value,  is  nature's  gift, 
since  it  is  done  unconsciously  and  without  merit  on  labor's 
part.  Capital  in  this  case  is  nature's  beneficiary.  The  same 
fact  becomes  evident  if  we  regard  capital  from  another  stand- 
point. As  capital  increases  in  (piantily,  the  difference  be- 
tween fixed  and  circulating  capital  (to  ad(jpt  an  old  classifica- 
tion, but  excluding  wages  from  circulating  capital)  increases. 
That  is  to  say,  the  number  and  mass  of  those  things  which 
yield  up  their  utilities  but  slowly,  constantly  increase  in  pro- 
portion to  those  whose  utilities  are  transferred  at  once.  Now, 
just  so  far,  says  Mar.x,  as  tlu^se  things  which  lose  their  value 
piecemeal,  are  "  wholly  em])lo\-ed,  but  only  partially  consumed, 
they  perform  the  same  gratuitous  service  as  natural  forces, 
water,  steam,  .air,  etc.  This  gratuitous  service  of  past-labor, 
when  filled  with  a  soul  by  living  labor,  increases  with  the 
advancing  stages  of  accumulation."  ' 

This  general  idea  has   further  enforcement  by  a  course  oi 


603. 


^Capital-  p.  616. 


■■<//'/(/.,  p.  617. 


*  IbiJ ,  p.  620. 


"W 


I 


1 02 


CKKMAX  ll'AijK   THEOK.'ES 


[398 


argument  which  is  designed  to  show  the  infliit.ncc  of  the  ^'lovvth 
of  capital  upon  the  fate  of  th(;  laboring  class,  and  which  ends 
with  a  mehTncholy  j)icture  of  the  pauperism  to  which  the 
laboring  population  of  the  world  is  inevit.<bly  tending  by  the 
very  essence  of  the  caj)italistic  mode  of  production. 

Accumulation  and  consequent   growth  of  capital  yield  the 
following  results: 

I.  Diminution  of  the  mass  of  employed  lab(jr  in  proportion 
to  tlie  mass  of  the  means  of  production. 

II.  Accelerated  dinu'nution  of  variable  as    compared  with 
constant  capital. 

III.  Increase  of  surplus  population  more  rapidly  than  the 
diminution  of  the  variable  i)art  of  capital. 

Ik'fore  taking  these  points  in  order,  it  is  desirable  to  show  a 
direct  relation  between  accunndation  and  rate  of  wages.  A 
rise  in  wages  has  one  of  two  possible  meanings,  with  reference 
to  accumulation,  ha'ther  it  does  not  interfere  with  accumula- 
tion, in  which  case  capital  is  in  excess,  not  because  labor 
power  or  labor  population  is  diminished,  but  becaus(.\  given 
excess  of  capital,  exploitable  labor-power  is  insufficient.  It  is 
not  a  case  of  stationary  capital  with  a  diminishing  population, 
but  one  of  increasing  accumulation,  and  not  enough  laborers 
for  capital  to  exjiloit  with  the  highest  advantage.  Or,  on  the 
other  hand,  accumulation  is  reduced  in  consequence  of  the  rise 
in  the  price  of  labor.  In  this  case  capital  is  insufficient,  not  bo- 
cause  of  increase  of  labor-power,  but  because,  by  a  relative 
diminution  of  capital,  there  exists  more  labor-power  than 
capital  can  exploit  to  the  advantage  of  accumulation.  The 
rate  of  accumulation  is  the  independent  variable ;  the  rate  of 
wages  is  the  dependent  one.  The  correlation  between  accumu- 
lation of  capital  and  rate  of  wages  is  nothing  else  than  the  cor- 
relation between  unpaid  labor  transformed  into  capital,  and 
paid  labor  necessary  to  set  the  capital  in  motion.  It  is  simply 
the  relation  between  paid  and  unpaid  labor  of  the  same  popula- 
tion.    Wages  rise  whenever  the  quantity  of  unpaid  labor  in- 


creases  so  rapidly  that  its  conversion  into  capital  rciiuircs  an 
extraordinary  addition  of  paid  labor,  thus  diminishing  unpaid 
labor  in  proportion,  liut  the  movement  of  the  rise  of  wages 
receives  a  check  wnenever  this  diminution  touches  a  point  at 
vvliich  surplus-population  which  nourisjies  capital,  is  no  longer 
supplied  in  normal  cpiantity,  rmd  accumulation  lags.' 

The  first  of  the  above  propositions,  viz. :  that  the  mas.s  of 
employed  labor  diminishes  in  proportion  to  the  means  of  pro- 
duction,' is  one  very  difficult  to  prove,  and  might  be  more 
difficult  to  deny.  The  fact  that,  in  modern  civili/ed  countries, 
wealth  increases  more  rapidly  than  population,  creates  a  pre- 
sumption that  means  of  productio.^  increase  faster  than  em- 
ployed labor;  but  it  is  only  a  prcsumution.  Observation, how- 
ever, supports  the  view  that  as  time  proceeds,  of  the  total 
capital  employed,  a  larger  proportion  is  devoted  to  purchase 
and  maintenance  of  means  of  production.  The  diminishing 
proportion  goes  to  pay  for  labor-power.  It  is  desirable  that 
this  proposition  should  be  put  to  some  statistical  test  if  it  is  to 
be  used  as  a  step  in  an  argument.  But  Marx  does  not  do  that, 
but  is  satisfied  with  very  general  statements,  such  as  that  it  is 
brought  about  by  the  compound  ratio  of  impulses  which  the 
capitalistic  mode  of  production  and  accelerated  accumulation 
give  one  another,'  or  that  it  is  due  to  the  concentration  of 
wealth,  the  domination  of  larger  capitals,  or  the  credit  system. 

In  the  second  proposition,  we  have  a  more  radical  doctrine 
still.  It  is  that  variable  capital  diminishes  at  an  accelerated 
rate  as  compared  with  constant  capital.*  Variable  capital 
diminishes  more  rapidly  than  total  capital  increases.  Increased 
accumulation  and  concentration  of  capital  arc  regarded  as  the 
source  of  this  new  change  in  the  composition  of  capital.  We 
arc  not  furnished  with  the  proofs  of  the  alleged  fact,  nor  have 
we  any  convincing  account  of  causes. 


^Capital,  363-4. 
'  Ibid.,  p.  639. 


^IbiJ.,  p.  636. 
♦  IbU.,  p.  643. 


w 


l\ 


i 


liM 


(,7  AM/  r\   ;;  n. /    iiii  i>x//  \ 


It 


>ii 


i:  i 


:l 


i  i 


t  ii 


Hilt  till-  tliiiil  piopositjon   tli.it     iii|)liis  |i(i|)iil,itiitn  inriciM". 
iMoic  i.ipiilly  1 1 1. 1 II  the  (liininiitinii  III  tlu   \.ii  i.ilili   |).u  I  nl  i  ,i|iit,il,' 
is  in  •;nMt»i  in  ft  I  ol  tlfnioiisii.itii>n  tli.in  tlw  hIIki  . ;  M.ii  \.  Imw 
(-\ri,  (Iocs  Hot  Mi|)|)ly  It.      Il  it  well'  nut  iu,iiiil.nn<  i|  tli.it  v.m.i 
l)li-  (  .ipit.ll  W.ls  ilcvotcil  to  t  lie  Mlpjioi  t  ot  the  l.ilioi  ill;;  |)i  >|iii|,il  i<  ill, 
th.ll    It     IS   .ilw.iys   tlisli  ilmlid    s.i    iiir.i;;n  I\-   .is    to    sii|i|tly  nicic 
cnicss.ii  i(-s,  ,111(1  tli.il  the  Lilioriiii;  (  l.i'.s  li.iil  pi.ii  Ik  ,ill\'  no  ntlx  i 
soiioc  ol  Mi|>|)Iy,  It  nii};lit  not  .ippcii  out  olpl.Hc  to  lioM  tli.it 
popiil.ition   m.m.i'M'd  to  cxliibit   sio.ns  ol   iiKlcpcndcnt c  ol  the 
\-.ii  i.ililc  iMpit.il  .Is  till-  source  ol   its  tood   supply.      It  would  lie 
ijllitc  tMsy  to  liclli'NC    til. it    tluu'   CMstcd    no    siu  li   stii(t    c\)\\,- 
spoiidi-iU'c   hi'tWi'cMI  \'.ii  i.ihlc   c.ipit.il  and   popiil.itioll,  .is  to  pic 
vent  .1  slii;hl   ii'l.itivi*  iiurc.iM'  oi  (lintiniition  ol  iillici.     ( )n(' 
nii^dit   (xcn   .idiiiil  lor  population  .i   slower  iiiovriiunt  tli.iii  lor 
v.iii.ihli"  c.ipit.il,  till"   loiiiu'i    1.h;im"iI    lu-lnnd   the    l.ittcr.     (  )iic 
luii'Jit  doiiNt  wlu'thi'i    popul.ition   could    nuicisc  in  a  ((HisLint 
ratio  .IS  v.iii.iMc  c.ipil.il  diminished  m  tlie  s.inie  r.itio;  hut  tli.it 
jiopiil.ition   should    actnall)'   incr(.Mse  taster  than    the   vaii.thle 
capital  diminishes,  and  that  too  not  (or  short  periods,  hut  ( on 
timi.iilN'  as  a  perm.mcnt  movement,  ;md  Imthermore,  th.it  this 
movement  should   l>e  the  n.itui.il  liuit  iA  ai'cumulation,  needs 
.1   logical   stati'ini'iU   ol    soci.il   .ind   industrial   setpii-nces.      Uiit 
this  is  just  wh.U    M.irx  does  not  j^ive  us.     Theri'  are  hut  hints 
as  to  tlu"  me.ms  hy   which   the   l.ihoiinij    popiil.ition   is  made 
superlluous.     Such   .ire  tlu"  m.iLMiilude  ol    soci.il   c.ipit.il,  the 
lic^iee  ol  its  incre.ise.  the  extension  of  the  sc.ile  ol  production, 
and  ol   the   m.iss  ot"  l.ihorers   set    in    motion,  and   the  j^re.iter 
brc.idth  aiul  liillness  o(  all  st)urccs  of  wealth. 

These  iloctrines,  supported  hy  such  reasoninj^s,  constitutL' 
the  thcvtretic.il  bases  tor  M.irx's  l.iw  of  wa^es.  In  this  view, 
sur[)lus  popul.ition  is  a  nece.ssary  product  of  accimuilation. 
There  is  providi-d  an  industrial  reserve  army  which  it  is  for 
the  interest  of  capit.il  tt)  h.ivc  on  haml  tor  new  enterprises,  and 
as  a   j^eneral    source  of  exploitation. 

H'a/>ifii/,  J).  650. 


401] 


////  \(>(7  1/  /,s/;v 


K'S 


M.iiA  thinks  til. if  III-  li.i'.  In  ic  lilt  ii|ii>ii  till  line  i  \|iI.m,»(ii'H 
of  HCIli  i.il  W.ij'.c'.,  wlin  li  iiiii  .1  lie  ill  .1iii;mii  III  (I  li  •  iiii  .iiij-  tx- 
pl.itiiitinn    ol    liu.il    w.i^M's.     will  n    till'    olilci    ( t  DiiMiiiists  ex 

jll.Ullftl  .1    I  i'-r  <'l    W.I^M".  iis  ,1  (  nlisci|l|r||i  r  nl    I  Mi  |r,l  .«•   iii'  <  .l|iil.ll 
«IV('I     |io|)lll.ltiii|l,  ;U)ll    .1    l.lll    n(    \V.I^'/'s  ,|s    .1    I  <  <ll    rijlK  III  (■   i<|    ill 
iliMM-  ol    p(i|iiil.ilii)n  i)\  11   (  .i|iit,il,  lf|iifM  iitiii;.;   llir    |M.|)iil.itiim 
as   in   |)iiis|)rioii'.   liiiic,   mi  mmmii;^   its   iiniiiliti  •>   hiil    in    linirs 
i)\'    inisciy    .mil    w.iiil     i  lin  kin;;    iIh-    im  iim.c.    tlir     (  .\|il.in.i 
tion    cinploys    ,i    Iik  .il    ur    |i  inpiti.n  y    i  .iiisr    tn    .u  i  oiint    Im    .i 
j;cnci.il    III     priiii.imnl      iiHiMfiniil.      A     wniKin;;     |ii.piil.itiiin 
tends  to  (listi  il)iitc    it-.cll    ovi'i  llic  cntiii-  In  lil  ol   pnxliii  tmn  in 
olxMlicnif  to  the  (Ifsiic  loi   (lie  iaij^i'sl    [\<u\\.      V\  ilric  t.ipil.il  is 
jonnd  in  icl.itivc  alinntl.incc,  tlicic  (.ipitiil  tends  to  ;i(  (  ntunhitc; 
an<l  il   till-  inovcincnt  li;is  {mvcu  any  locality  a  po])iilalion  icla- 
tivi'ly  too   larjM',  wa^M-s   lall  and   popnl.ilion   tends  to  diiniiu^h. 
Tins,  Marx    says,  is  an  at'  aiale  di  .(liption  of  the  relation  bc 
twcen  wa^es  and  the  distiihntion  of  population  over  tlie  dilfer 
ent  splu'ifs  ol  production.      Hut  it  would  he  nntiiic  to  conclude 
that  lor  all    society  when  \va(.Ms    lisc,  |io])ul.ition    iih  least  s   Ny 
reason  of  fewer  deaths  and  more  hirtlis  per  thousand  ;  aiul  lli,.t 
\va}.M's  a^ain  fall  a.s  a  result  ol  a  redundant  population,  because 
"before,  in   conse(|uenci'  of  the  risi    of  wajM  s,  any  positive  in- 
crease  of  tlu;   popul.ition  really  fit   lor  work    could  occur,  the 
time  would  liave  jiassed  aj^ain  and  a}.;ain."' 

The  other  ^leat  exponents  of  (jernian  socialisMi  were  Rod- 
berlus  and  L.issalle.  Nothing  but  the  briefest  lu-.'ice  of  their 
views  can  \h:  ^iven  here.  Kodbertus,  like  Marx,  w;is  a  master 
iinnd,  and  it  is  noteworthy  that,  working  (|iiite  apart,  tixy 
canic  to  much  the  same  conclusions  on  many  important  points. 
Rodbertus,  when  hv  seriously  compart:s  modern  laborers  with 
slaves,  states  as  stron<;ly  as  possible  the  minimum  support  of 
labor  as  a  determinant  of  waj^es.  lie  regards  the  unlimited 
ri{^ht  to  the  fruit  of  one's  own  labor  as  the  natural  basis  and 
essence  of  property  ri}.jht.     lie  says  that  this  principle  is  con- 

'  Capilat,  p.  651-3. 


^^m 


w 


UM 


4     ^ 


io6 


GERMAN  ll^AGE  THE  OKIES 


[402 


tinuously  violated,  in  connection  with  the  ownership  of  land 
and  capital,  by  the  present  legal  economic  arrangements. 
That  laborers  have  the  fruit  of  their  labor  transferred  to  others 
is  due  to  positive  law  and  continual  force.'  Under  slavery,  the 
force,  instead  of  being  exercised  by  positive  law,  was  exercised 
by  the  masters.  They  took  the  product,  but  gave  the  slave  only 
as  much  as  was  necessary  for  the  continuation  of  his  labor. 
How  is  it  under  the  present  regime,  when  all  the  soil  and  all 
the  capital  have  been  made  subject  to  private  property?  As 
under  slavery,  the  product  belongs  not  to  the  laborers,  but  to 
the  lords  of  capital  and  land.  As  under  slavery,  laborers 
are  comparatively  happy  if  they  secure  from  the  product  of 
their  own  labor  such  a  part  as  is  required  for  lifer's  support; 
/.  i\,  for  the  continuation  of  their  labor.  If  it  is  said  that  in 
place  of  slave  possession  we  have  free  contract,  it  must  be  an- 
swered that  the  contract  is  only  formally  free.  Hunger  has 
taken  the  place  of  the  whip.  What  was  formerly  called  fodder 
is  now  called  wages.'^ 

This  doctrine  has  become  a  fixed  article  in  the  theoretical 
economic  creed  ot  the  German  working  men,  largely  through 
the  agitation  of  Lassalle,  who  never  lost  an  opportunity  to 
enforce  upon  the  Germans  that  their  wages  were  down  to  the 
subsistence  point,  and  that  they  were  kept  there,  under  pres- 
ent economic  arrangements,  by  a  law  as  inexorable  as  iron. 
As  an  authority  for,  and  an  expositor  of,  this  law  he  appealed 
to  Ricardo.  If  wages  rise  above  the  minimum  more  laborers 
are  born  into  the  world,  and  competition  reduces  their  re- 
muneration. If  wages  fall  below  the  minimum  labor  popula- 
tion fails  at  the  source,  and  again  demand  causes  wages  to  rise. 

It  will  not  escape  notice  that  on  this  point  Marx  and  Las- 
salle were  in  opposition.     Mar.x  endeavored  to  strike  deeper. 

^  Das  Kapital,  1 834,  P-  2 1 4-5. 

"^  ZurBeleiichtnng  der  Socialcn  Frage,  1875,  P-  33- 


-I     I 


[402 

of  land 
gements. 
to  others 
very, the 
exercised 
lave  only 
\s  labor. 
1  and  all 
ty?  As 
•s,  but  to 
laborers 
oduct  of 
support; 
d  that  in 
St  be  an- 
iger  has 
:d  fodder 

leoretical 

through 

:unity  to 

n  to  the 

der  pres- 

as  iron. 

appealed 

laborers 

their  re- 

r  popula- 

ts  to  rise. 

and  Las- 

e  deeper. 


CHAPTER  VII 


SCllULZE-GAEVEKNITZ 


The  reaction  against  the  wages  fund  theory,  which  was  first 
expressed  by  Hermann  and  c'nd  carried  on  by  Brcntano  and 
others,  is  issuing  forth  in  a  group  of  thinkers  of  which 
Schulze-Gaevernitz '  is  an  important  member.  The  earlier 
reactionists  drew  attention  away  from  past  accumulation  in  the 
hands  of  employers,  as  the  true  source  of  wages,  to  that  of  the 
consumers'  income,  which  is  devoted  to  the  purchase  of  lab- 
orers' product.  The  latest  development  of  wage  theory  in 
Germany  holds  the  so- called  residual  theory,  and  points  to 
the  conclusion  that  in  the  evolution  of  centralized  industry 
(Grossbetrieb)  there  falls  to  labor  a  continually  more  favorable 
share  of  the  product.  This  view  is  summari.7cd  in  three  pro- 
positions : 

(a)  In  respect  to  any  given  product  the  amount  of  reward 
which  accrues  to  capital  decreases,  not  only  absolutely,  but  also 
relatively  to  labor. 

(/')  The  amount  which  accrues  to  labor  decreases  absolutely 
with  reference  to  a  single  product,  but  increases  relatively. 

(c)  Within  a  defined  product  the  amount  falling  to  both 
capital  and  labor  absolutely  decreases  with  the  development  of 
centralized  industry.  The  process  is  a  cheapening  of  produc- 
tion in  favor  of  the  consumer. 

(ill)  The  increase  of  the  national  product  makes  possible  for 
labor  and  capital  an  absolutely  greater  return,  with  the  de- 
velopment of  industry,  but  the  share  of  capital  relatively 
decreases,  that  of  labor  relatively  increases.* 


'  See  his  Der  Grossbetrieb,  1S92. 
403] 


'  Der  Grossbelrieb,  p.  224. 
107 


io8 


GERMAN  WAGE   THEORIES 


[404 


m 


■k 
li 


It  is  held  that  in  the  earlier  period  of  the  modern  industrial 
evolution  the  laboring  classes  still  belonged  psychologically  to 
an  earlier  date.  Their  \vagec<  were  more  or  less  near  to  the 
so-called  life  minimum.'  The  great  picneei's  of  industry,  with 
disposable  capital  in  thei^  hands,  had  a  double  advantage. 
First,  the  new  order  of  things  with  its  high  demand  for  capital 
gave  its  possessors  a  high  bargaining  power.  Hence,  interest 
was  extrordinarily  high.  Secondly,  the  talent  brought  to  bear 
in  the  new  fields,  being  of  a  rare  and  special  quality,  deserved, 
and  was  able  to  obtain,  great  rewards.  Both  these  forces, 
when  united  in  the  sai.ie  individuals,  as  they  usually  were,  in 
reference  to  the  ownership  and  management  of  a  given  body 
of  capital,  gave  them  such  advantage  in  the  industrial  order 
that  the  additional  valu<?i  created  by  the  new  organization 
fell  easily  into  their  hands.  They  may  be  said  to  have  re- 
ceived the  remainder  after  the  usual  costs  were  paid. 

Since  that  initial  period  of  capitalistic  production  to  the 
present  time  a  great  change  has  occurred.  Now  capital  has 
increased  enormously  and  interest  has  been  gradually  falling 
for  many  years.  And  talents  which  were  once  so  rare  no 
longer  enjoy  the  monopoly  of  old.'^  The  characteristics  of  the 
early  period  were:  high  costs  due  to  high  interest  and  high 
prices,  together  with  high  profits  due  to  the  element  of 
monopoly.'  Our  author  justifies  this  regime  on  the  grounds 
that  in  no  other  way  could  the  great  masses  of  capital,  which 
were  necessary  for  the  successful  conduct  of  business  in  the 
new  order,  be  brought  together,  that  the  habits  and  tradi- 
tions of  an  earlier  time  favored  a  comparatively  inferior  order 
of  men  in  the  industrial  field,  and  therefore  the  large  accumu- 
lations with  high  profits  were  necessary  to  win  capable  heads 
for  industrial  callings,  and,  furthermore,  that  these  capable 
heads  came  to  have  political  influence,  and  social  development 
was  pushed  forward  through  the  exercise  of  political  power  by 

'  Schulze-Gaevernitz,  Der  Grossbetrieb,  p.  215. 

'Ibid.,  p.  218.  »  Ibiii.,  p.  217. 


w  r 


™ 


405]  SC/IL'LZEG.-iEVERX/TZ  jq^ 

the  industriol  element.  In  contrast  with  the  characteristics  of 
the  opening  period  of  modern  industry,  the  present  shows  low 
costs  due  to  low  interest,  and  the  substitution  of  more  produc- 
tive capital  for  labor;  low  prices  with  an  advantage  to  the 
poor  consumer,  the  laborer,  whose  real  wages  are  thereby  in- 
creased.' The  struggle  to  lower  costs  is  a  leading  motive  and 
agency  in  centralized  industrial  development.  A  similar 
amount  of  capital,  because  of  technical  advance,  producers 
more  than  it  did  fifty  years  ago.  Interest  and  profit  have  not 
advanced,  hence  the  increasing  surplus  must  be  g-  ing  to  labor.'^ 
Edward  Atkin.son,  whom  Schulze-Gaevcrnitz  so  often  quotes, 
puts  the  case  as  follows:  Wages  are  a  remainder  from  the  .sale 
of  the  product.  To  ascertain  the  .share  of  labor  the  followinij 
deductions  must  be  made : 

1.  Replacement  of  capital  u.'ed. 

2.  A  sum  equal  to  the  average  rate  of  profit  on  capital  in- 
vested in  the  very  safe.st  securities,  and  enough  in  addition  to 
cover  risks. 

3.  Cost  of  materials. 

4.  Cost  of  the  very  best  administration, 

5.  Taxation. 

The  remainder  con<;titutes  the  wages  of  labor,  whatever  that 
remainder  may  be.  Wages  constitute  all  there  is  left,  and 
under  the  inexorable  law  of  competition  of  capital,  the  profits 
of  capital  are  constantly  tending  to  a  minimum,  while  the  rate 
and  purchasing  power  of  wages  are  con:,tantly  tending  to  a 
maximum.'^ 

Let  us  now  consider  first  the  implication  of  these  views,  and 
then  show  their  bases  in  theory.  That  laborers  are  abso- 
lutely better  ofif  now  than  they  were  in  the  early  part  of  the 
century,  there  can  be  little  doubt.  But  that  the  growing 
advantages  of  civilization  are  being  secured  more  fully  by  the 
laboring  classes  relatively  than  by  the  oXh<tr  classes  in  society 

•  SchuIzeGaevernitz,  Der  Grossbetrieb,  p.  2i(,.  ^Ibid. 

'Atkinson,  The  Distribution  of  Products ^  1885,  p.  70. 


m- 


■^ 


I 


I  lO 


GERMAi'^  WAGE  THEORIES 


[406 


is  by  no  means  free  from  dispute.  The  question  cannot  be 
discussed  properly  apart  from  a  consideration  of  the  relative 
numbers  in  the  social  classes — those  who  live  directly  on  the 
proceeds  of  capital,  and  those  who  depend  upon  the  proceeds 
of  manual  labor.  Marx'  contention  that  there  always  exists  a 
reserve  army,  although  he  may  not  have  correctly  traced  a 
causal  connection  between  the  growth  of  such  a  reserve  and 
accumulation,  has  enough  truth  in  it  to  make  the  problem  of 
the  unemployed  one  of  grave  concern.  Concentration  of  indus- 
try is  certainly  eliminating  the  small  producer  and  small  dealer 
and  converting  them  into  laborers.  If  the  class  laborers  is 
constantly  growing  relatively  larger,  and  the  class  capitalists 
is  growing  relatively  smaller,  the  returns  to  capital,  though 
relatively  less  per  unit,  could  secure  to  the  capitalist  relatively 
more  as  a  whole  than  the  laborer  progressively  receives.  The 
question  of  concentration  of  property  is  of  great  importance, 
because  we  desire  to  know  not  so  much  the  progressive  retuin 
to  capital,  as  the  progressive  return  to  the  capitalist. 

Moreover,  the  annual  wealth  of  a  country  is  by  no  means 
measured  by  the  products  of  manufacture,  agriculture  and 
trade — using  these  terms  even  in  a  wide  sense ;  but  must  in- 
clude the  increase  of  the  value  of  what  from  one  standpoint 
may  be  called  idle  property.  Such  are  city  lots  and  other 
property  that  increase  in  value  annually  by  mere  situation 
and  growth  of  population.  These  increased  values  accrue  to 
persons  as  owners.  Laborers  have  small  share  in  these 
increments. 

Further,  it  is  not  certain  what  these  authors  mean  by  capi- 
tal. What  is  often  called  capital,  and  upon  which  the  usual 
rate  of  interest  is  computed,  is  so  often  mere  "  water,"  and  rep- 
resents no  real  investment,  but  results  from  capitalization. 

It  is  not,  however,  with  the  alleged  fact  of  the  relative  gain  of 
capital  and  labor  in  growing  industry  that  we  have  in  this  essay 
primarily  to  do ;  but  rather  with  the  law  of  wages  according 
to  which  the  result  is  said  to  issue,  viz.,  that  wages  are  the 
residual  share  of  the  total  national  income  to  be  distributed. 


Hi;! 


[4o6 


I 


k 


^07]  SCHUI.ZEGAEVERMTZ  m 

So  far  as  known  to  the  present  writer,  no  German  author 
has  formulated  in  detail  the  grounds  of  this  theory.  But  since 
the  residual  wage  theory  is  the  basis  of  Scluilzc-Gacvornitz' 
work,  it  is  desirable  to  make  some  examination  of  it. 

According  to  this  tlieory,  rent,  interest,  and  profits  are  each 
governed  in  amount  by  independent  laws,  while  wages  remain 
as  a  residual  share.  The  owners  of  land  receive  rent,  the  own- 
ers of  capital  receive  interest,  and  the  owners  of  undertakers' 
ability  receive  profits.  Rent  is  fixed  in  amount  by  the  Ricar- 
dian  law.  Interest  is  fixed  by  the  law  of  supply  and  demand. 
Profit,  the  share  of  the  undertaker  as  such,  which  hitherto  had 
been  confounded  with  the  capitalist's  share,  has  been  of  recent 
years  differentiated  as  the  peculiar  reward  for  initiating  and 
"captaining"  industry,  and  has  been  assimilated  to  the  law  of 
rent  for  the  use  of  land.  Francis  A.  Walker,  who  called  profits 
the  rent  of  ability,  has  the  credit  of  being  the  first  clearly  to 
expound  in  detail  this  theory  of  profits  as  well  as  the  residual 
theory  of  wages.  According  to  this  view,  profits  may  be  stated 
in  terms  of  the  law  of  rent;  profits  are  determined  by  the  dif- 
erences  existing  in  the  productiveness  of  different  abilities  or 
opportunities  of  employers  engaged  at  the  same  time  in  sup- 
plying the  same  market.'  Profits  range  from  the  return  to  the 
poorest  undertaker,  who  receives  ordinary  wages  and  who  is 
called  the  no-profit  undertaker,  to  the  return  which  is  limited 
only  by  business  ability. 

All  three  shares  are  so  determined  that  they  can  in  no  way 
interfere  with  the  laborer's  share.  Thus  runs  the  theory:  "un- 
less by  their  own  neglect  of  their  own  interests,  or  through 
inequitable  laws  or  social  custom  having  the  force  of  law,  no 
other  party  can  enter  to  make  any  claim  on  the  product  of  in- 
dustry, nor  can  any  of  the  three  parties  already  indicated  carry 
away  anything  in  excess  of  its  normal  share,"*     This  state- 

'  Walker,  Political  Economy,  3d  ed.,  1888,  p.  236;  Marshall,  Principles  of 
Economics,  2d  ed.,  1891,  Book  vii.,  ch.  v,  §  7. 

*  Walker, /i7/«V«Va/ £<:o«<?»y,  1888,  p.  251. 


i 


* 


112 


GERMAN  WAGE   THEORIES 


[408 


H 


%    '' 


ment  of  the  theory  has  been  interpreted  to  mean  that  the 
laborer's  share  is  wholly  dependent  upon  the  laborer's  contri- 
bution to  the  total  product.'  This  conclusion  is  not  unnatural 
from  an  exclusive  attention  to  particular  parts  of  Walker's 
work,'  and  an  endeavor  to  connect  wages  and  laborer's  contri- 
bution from  the  statement  that  "  wages  equal  the  whole  pro- 
duct minus  rent,  interest  and  profits."^  But  attention  to  all 
that  Walker  has  written  on  the  question  of  distribution  makes 
it  reasonably  clear  that  he  did  not  intend  to  teach  a  strictly 
productivity  theory.  That  is,  he  did  not  attempt  to  establish 
any  identity  between  the  sum  of  values  received  as  wages,  and 
the  sum  of  values  produced  by  labor  in  the  productive  co- 
operation. He  attempted  to  show  that,  when  all  the  factors 
are  working  under  normal  conditions,  there  is  a  process  of 
carving  out  shares  from  the  total  product  by  all  the  productive 
factors  except  labor;  that  wliatever  may  remain  after  the  slic- 
ing process  is  complete  goes  to  labor  as  its  share.  If,  now,  the 
total  product  is  increased  by  the  energy,  economy  or  care  of 
labor,  assuming  no  change  in  the  other  factors,  and  assuming 
the  absence  of  friction,  that  increase  goes  to  labor.  In  other 
words,  if  laborers  make  the  total  larger,  and  no  change  occurs 
in  the  efificiency  of  the  other  factors,  the  enlargement  of  labor- 
ers' remainder  equals  the  enlargement  of  the  total.  This  is  an 
identity  between  an  increment  of  product  attributable  to  labor 
and  an  increment  accruing  to  wages.  At  most,  by  this  theory, 
the  productivity  theory  applies  to  an  increment  and  does  not 
extend  to  total  wages.  "  So  far  as  by  their  energy  in  work,  their 
economy  in  the  use  of  materials,  or  their  care  in  dealing  with 
the  finished  product,  the  value  of  that  product  is  increased,  that 
increase  goes  to  them  by  the  force  of  natural  laws,  provided 
only  competition  be  full  and  free."  * 

'  yournal  of  Political  Economy ,  v.  2,  pp.  77-87,  especially  pp.  81-2. 
'  See  especially  Wages  Question,  pp.  129,  130. 
'Walker,  Political  Economy,  3d  ed.,  1888,  p.  284. 
*  Walker,  Political  Economy,^.  251. 


[408 

n  that  the 
rer's  contri- 
•t  unnatural 
)f  Walker's 
rer's  contri- 
whole  pro- 
:ntion  to  all 
jtion  makes 
h  a  strictly 
to  establish 

wages,  and 
ductive  co- 

the  factors 

process  of 
t  productive 
ter  the  slic- 

If,  now,  the 
y  or  care  of 
id  assuming 
-.  In  other 
ange  occurs 
;nt  of  labor- 
This  is  an 
ble  to  labor 
this  theory, 
nd  does  not 
I  work,  their 
dealing  with 
:reased,  that 
vs,  provided 


409] 


SCHUI.ZE-  Gh E  I  ERNI T/. 


n% 


The  Germans  under  consideration  do  not  attempt  to  modify 
in  any  important  particular  the  main  feature  of  Walker's  theory. 
Hence  a  consideration  of  this  part  of  German  theory  calls  for 
no  extended  criticism.  Such  would  be  a  criticism,  not  of  the 
German  work,  but  of  that  of  President  Walker.  It  may  be  re- 
marked, however,  that  an  appreciation  of  the  strength  of  this 
theory  requires  a  careful  consideration  of  wage  conditions  for 
short  and  for  long  periods  of  time.  Attention  to  that  differ- 
ence might  have  saved  some  criticisms.  Walker  admits  that 
for  short  periods  his  theory  docs  not  hold  true. 

When  we  have  made  all  allowances,  the  theory  fails  to 
satisfy  the  mind  completely.  An  efficient  competition  of  capi- 
tal is  assumed,  while  the  equally  at  times  efficient  competition 
of  labor  is  minimized.  Money  wages  are  for  the  most  part  in 
the  author's  mind,  and  there  is  hence  a  lack  of  definiteness  as 
to  the  true  relation  of  capital  to  wages,  and  no  determination 
of  consumable  goods  as  the  source  of  real  wages. 


81-2. 


